BGC Partners Tops CME Group in Bid for GFI Group
BGC Partners announced a tender offer for GFI Group shares at 15% above the CME Group equity offer announced in late July; merger synergies seem to justify the higher price.
BGC Partners (BGCP) announced on Sept. 9 that it intends to commence a $5.25 per share tender offer for GFI Group (GFIG) shares. This offer is 15% above the CME Group (CME) equity offer of $4.55 per share announced in late July. Besides the price, another major difference between the two offers is that CME Group's offer is structured as a tax-free exchange for CME shares, whereas the cash offer from BGC Partners will create an immediately taxable event for most shareholders. The BGC Partners offer is also contingent on enough shares being tendered for it to own a majority of GFI Group when added to its existing 13.5% ownership interest. With the change in GFI Group's management, large influx of cash at BGC Partners after selling eSpeed, and tough interdealer broker industry environment, we had always thought that BGC Partners was likely to be a consolidator and that GFI Group would be a likely target. We don't anticipate making a material change to our fair value estimates for BGC Partners or CME Group, but we may raise our fair value estimate for GFI Group to reflect the probability of this tender offer going through. We are maintaining our wide moat rating for CME Group and no-moat ratings for GFI Group and BGC Partners.
Though BGC Partners’ $5.25 proposed tender offer for GFI Group shares is about 40% above our stand-alone fair value estimate for GFI Group and 15% above CME Group’s offer, the premium could be justified by merger synergies and a resulting change in the competitive dynamics of the interdealer broker industry. Even if we assumed absolutely no synergies, the loss from overpaying would be about $0.50 per BGC Partners share. Given that BGC Partners hasn’t given much detail about synergy benefits, and given the possibility that the tender offer won’t materialize, we don’t anticipate making a material change to our fair value estimate for no-moat BGC Partners.
Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.