October 22, 2014 / 8:41 AM / 6 years ago

UPDATE 3-BGC launches formal $675 mln offer for rival broker GFI

* BGC commences all-cash tender offer of $5.25 a share for GFI

* GFI made “unreasonable demands” in negotiations - BGC CEO

* BGC says has secured financing from Morgan Stanley (Adds GFI response in paragraph 8)

Oct 22 (Reuters) - Interdealer broker BGC Partners Inc went ahead with the formal launch of its hostile $675 million bid for rival GFI Group Inc on Wednesday after talks between the two companies reached a deadlock.

Interdealer brokers match wholesale buyers and sellers of currencies, bonds and other instruments but analysts have long expected the industry to consolidate since new regulations forced their traditional investment banking clients to reduce risky trading activities.

The industry has also faced challenges as regulators have pushed more derivatives trading onto electronic platforms in a bid to make the market more open and safer. Low interest rates also have dampened market volatility, adding to brokers’ woes.

BGC said on Wednesday it had commenced an all-cash tender offer of $5.25 per share for the 86.5 percent of GFI that it does not already own.

The terms remain unchanged from BGC’s Sept. 9 proposal that topped exchange-operator CME Group Inc’s $4.55 per share all-share bid.

“Despite our best efforts to engage with GFI regarding a negotiated transaction we have been met with only unreasonable demands and delay tactics,” BGC’s chief executive Howard Lutnick said in a statement.

BGC said it remains open to seeking a negotiated transaction with GFI and CME. Its tender offer will expire on Nov. 19.

GFI said a special committee would review the offer and make its position known by Nov. 4. Until then it advised its stockholders to take no action with respect to the tender offer.

CME Group was not available for comment.

GFI’s board has backed CME’s deal, saying last month it had still not determined whether the BGC offer “constitutes a superior proposal” despite BGC saying its $5.25 cash offer was worth over 15 percent more than CME’s all-share bid.

If the BGC bid is successful, a BGC-GFI merger would create a strong rival to market leader ICAP and the enlarged group’s estimated revenue would dwarf that of next closest rival, Britain’s Tullett Prebon.

“We expect the combination will also produce increased productivity per broker, meaningful synergies, substantial earnings accretion and stronger cash flow,” Lutnick said in Wednesday’s statement.

Talks between BGC and GFI hit a roadblock over negotiations relating to a confidentiality agreement that would give BGC access to inside information about GFI’s energy markets trading platform Trayport and its pricing and data business known as Fenics.

In return for the information GFI had sought a pledge from BGC not to recruit its key employees.

“In light of your rejection of the terms of our proposed confidentiality agreement covering the Trayport and FENICS information, we have reached an impasse,” BGC president Shaun Lynn wrote in a letter to GFI’s board on Tuesday.

Fierce competition between the big five brokers, which also includes Switzerland’s Tradition, has long hampered deal-making in the industry.

Most of the companies’ chief executives have had high-profile feuds, with BGC, Tullett and ICAP in particular having engaged in regular battles over poaching staff and patent infringement, many of which have ended up in court.

BGC, which was spun off from Cantor Fitzgerald LP in 2004, said it has secured committed financing from Morgan Stanley Senior Funding and its offer has no financing condition. (Reporting by Shivam Srivastava and Sudarshan Varadhan in Bangalore and Clare Hutchison in London; Editing by Greg Mahlich and Savio D’Souza)

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