TP ICAP has launched a rights issue that is equal to 40 per cent of its existing share capital to help pay for the interdealer broker’s planned $575m acquisition of Liquidnet.
The UK company said on Thursday it would launch a 2-for-5 rights issue to pay for the US share trading venue. The purchase is intended to boost TP’s long-term revenue growth and underlying operating margins.
Although Liquidnet primarily makes money from equities, TP wants to use Liquidnet’s technology to spearhead a push into electronic trading of bonds and swaps in competition with companies such as Bloomberg, Tradeweb and MarketAxess.
TP will raise the bulk of funds from shareholders for the cash purchase, and has suspended dividend payments for the rest of the financial year.When the deal was announced in late September, the associated rights issue was equivalent to about a fifth of TP ICAP’s market capitalisation. Uncertainty over the rights issue, combined with the company’s soft trading performance, have since reduced its market capitalisation to £1.4bn. TP ICAP shares fell 2.7 per cent in morning trade in London.
TP ICAP’s need to diversify was underlined by a trading update on Thursday that warned growth had reversed last year as trading in swaps and bonds evaporated. Revenues for 2020 will be 1 per cent lower, on a constant currency basis, than the £1.8bn it recorded in 2019, the broker said. A shortfall in global broking was offset by rises in data and its institutional business, which serves hedge funds.
It said that Liquidnet was expected to produce a “strong revenue performance” in 2019 but did not provide further details.
TP will pay an initial $525m for the deal, followed by a further $50m. It may also pay another $125m, depending on its performance. The rights issue will raise around $427m (£315m), with TP issuing more than 225.3m shares, or 40 per cent of its existing share capital. HSBC will fully underwrite the rights issue.