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eSpeed Runs on Takeout Talk

Shares jump 8% as investors get hopping mad.



is drawing shareholder ire by scotching a buyout bid from U.K. broker-dealer Tullett Prebon.

Cantor Fitzgerald, the closely held New York trading firm that spun off the electronic brokerage in an initial public offering eight years ago, rejected Tullett's $600 million proposal to acquire eSpeed's Class A shares.

Tullett officials were unavailable for comment, but shares of eSpeed soared 8% Wednesday to $10.47 as investors bet the pressure would force a sale of eSpeed.

Aaron Braun, portfolio manger of Greenbrae, Calif.-based investment management firm WC Capital Management, says Cantor chief Howard Lutnick acted rashly in turning down the offer. The firm, which owns 6.3% of eSpeed, says Lutnick -- who is also eSpeed's chairman -- should have hired an adviser.

"I'm not an activist, but this is a situation where I need to weigh in," Braun says. "Not to weigh in is not upholding my fiduciary duty."

He says his firm has submitted a letter to Cantor asking for a review of the takeout offer.

"The Tullett Prebon bid of $12 is on the low end of our valuation range of $12 to $16 per Class A share we highlighted in our letter to Mr. Lutnick. Braun is asking that the Cantor hire an investment adviser or propose a competitive offer," said Braun in a written statement to Cantor.

"If it's worth $14 to $16 a share to

Tullett Prebon, bring it on," Braun says.

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Cantor's rejection, however, seemed to leave open to door to the possibility that the company might be enticed by a higher bid. Cantor declined to comment.

eSpeed maintains a two-class share structure, with the supervoting Class B shares owned by Cantor.

Los Angeles-based activist investor Robert Chapman, via his Chapman Capital firm, also has been a vocal critic of eSpeed. On Wednesday, he demanded an immediate sale of the company, the replacement of four directors and the dissolution of its two-class structure, according to a filing submitted with the

Securities and Exchange Commission

. Chapman's firm own 9.3% of eSpeed's Class A shares.

eSpeed maintains a strong position in its electronic trading and technology business, rivaled only by inter-broker dealer firm ICAP. Cantor and voice-brokerage firm BGC Partners -- another financial services firm owned by Cantor that is set to go public -- have been dominant fixed-income platforms.

Observers have speculated that Lutnick's intent with eSpeed and BGC is to create a three-headed fixed-income enterprise.

In a statement, Chapman said, "Chief Executive Howard Lutnick's three-kingdom reign over Cantor Fitzgerald, eSpeed and BGC Partners appears to be so infested with potential conflicts of interest and incestuous inter-company transactions that a completely new set of corporate governors may be required to exterminate the vermin from eSpeed's boardroom."

Chapman referred to his public statements when asked for comment.

In a statement last week, Lutnick said in naming a chief ethics officer at Cantor, "Our unwavering commitment to excellence in client service is matched by the fundamental value we place on best-in-class ethics and compliance."

Run by Terry Smith, Tullett two years ago made another failed run to acquire eSpeed. That move might have created friction between Smith and Lutnick.

Tullett is suing BGC in Singapore over a raiding of about 55 of its brokers and BGC has filed a countersuit, according to reports.