Lutnick Defends eSpeed Deal
Mark DeCambre
05/31/07 - 04:49 PM EDT
Howard Lutnick has come under intense fire from activist investors over the past few months, but the Cantor Fitzgerald CEO tells
TheStreet.com that plans to merge
eSpeed (ESPD Quote) and forgo an initial public offering of BGC Partners is the right move.
"Activist shareholders come with the territory of being public, but what you try and do is drive value at the company and this transaction does that," he explained during a phone interview Wednesday evening.
Electronic trading platform eSpeed is expected to issue 133.9 million new shares valued at $1.22 billion to London-based BGC. The combined company will take on the BGC Partners name and, assuming completion of the deal, about 300 founding partners of BGC will leave Cantor and join the combined entity. Lutnick adds that those partners will take a roughly 19% stake in the interdealer broker entity.
The combined interdealer broker company is expected to have about $1.1 billion of revenue this year, he added.
"This is really an ideal structured fit," Lutnick said. "This is like a hand and glove. eSpeed is the technology that drives BGC's business already and BGC has been the driver of eSpeed's growth."
Although reports have suggested that shareholder activists factored into forcing eSpeed's hand, Lutnick said plans for merging BGC and eSpeed had been considered as far back as February. "eSpeed has watched BGC for some time," he commented. The Cantor chief says the companies operated with independence in deciding to merge.
Cantor will control 65% (it currently controls 88% of eSpeed) of the planned BGC Partner entity, a stake that will be reduced over the next few years to about 45%.
"It's true that I play a significant role in both companies, but I played no role in the transaction of eSpeed's purchase," he added, noting that four independent directors on eSpeed's board approved the merger plan. The directors' job, he added, "was to make sure the deal was done in the best interest of shareholders, ignoring Cantor's interest."
Addressing the 6% premium being paid, which some observers consider low, Lutnick said eSpeed's board calculations valued its shares at a premium and wanted to acquire BGC at a discount.
One of activist shareholders' major gripes with eSpeed is its clubby, interwoven relationship with Cantor. The most vocal shareholder, Robert Chapman of Chapman Capital, has called for the sale of the company and a decoupling of its revenue streams.
As a part of the merger, eSpeed will cancel its revenue sharing agreements, in which it passed on 35% of revenue from certain portions of its business lines.
The deal is expected to close either at the end of the year or in the first quarter.
The merger plan comes amid a raft of changes in the interbroker and exchange world, and Lutnick is betting that the combined shop will be able to better compete with interdealer brokers including London-based competitor ICAP and GFI Group headquartered in New York.
Lutnick views the tie-up as a significant move for Cantor, which lost hundreds of employees on Sept. 11, 2001, when the World Trade Center was destroyed.
"Today was a really wonderful day for us. It really spotlights the incredible distance that Cantor has come," Lutnick said. "I for one am so tremendously proud of what the employees of BGC have accomplished over the past few years," he adds.
