May 2007
FX M&A: Tullett squares up to eSpeed
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"Our first approach to eSpeed two years ago was rejected but we continue to regard the strategic fit with Tullett Prebon as compelling" Terry Smith, Tullett Prebon |
The approach by Tullett Prebon on April 18 to buy eSpeed, the US-listed subsidiary of Cantor Fitzgerald, was always likely to result in mud-slinging. What is perhaps surprising is that this started as soon as Tullett announced the mooted deal.
There is a history of bad blood between Tullett and Cantor, stemming primarily from seemingly regular attempts by both companies to poach each others’ staff. The opening salvo in the latest outbreak was fired by Terry Smith, Tullett’s pugnacious chief executive, in the official announcement of Tullett’s approach to buy eSpeed.
As well as announcing that eSpeed had rejected the $12 a share approach, Smith said that a previous undisclosed approach had been spurned two years ago. "Our first approach to eSpeed two years ago was rejected but we continue to regard the strategic fit with Tullett Prebon as compelling," he said.
In the announcement, Tullett highlighted the convoluted ownership structure of eSpeed and said that the move was blocked exclusively by Cantor. "We believe that our proposal is in the best interests of eSpeed’s shareholders other than Cantor and those associated with it, and would unlock shareholder value that is now unavailable to the minority shareholders. We would highlight the fact that eSpeed’s board has not deemed it necessary to consult with any interested party other than Cantor in reaching this decision."
As news of Tullett’s approach broke, one of eSpeed’s larger shareholders waded in with its own criticism of eSpeed’s management and corporate structure. Chapman Capital, an investment adviser to two investment funds that own about 9.3% of eSpeed’s Class A shares demanded the replacement of several board members. It also asked for an independent audit to examine eSpeed’s relationship with Cantor.
Robert Chapman, a managing member of Chapman Capital, made a stinging criticism of Howard Lutnick, the chief executive of Cantor and eSpeed. He said: "Chief executive Howard Lutnick’s three-kingdom reign over Cantor Fitzgerald, eSpeed and BGC Partners [the voice broking unit spun out of Cantor that is planning for an imminent initial public offering] appears 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 any vermin from eSpeed’s board room."
He added: "Chapman Capital finds it astonishing that Mr Lutnick may believe he retains the residual credibility necessary to bedazzle a new group of investors in the proposed BGC Class A concoction after stupefying eSpeed Class A shareholders with years of underperformance and apparent disrespect."
Chapman claimed that eSpeed had not responded to his attempts to discuss the issue. He said: "The non-return of 24 straight business days of telephone calls from eSpeed’s largest class A owner is something one might have expected from multi-kingdom conflicted tyrants... but not someone as conscious of his public reputation as Mr Lutnick. Moreover, today’s disclosure of the seemingly impulsive rejection of Tullett Prebon plc’s premium acquisition proposal has done nothing but heighten our concerns that Napoleonic behaviour continues to be condoned by eSpeed’s director fiduciaries."