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Terry Smith is in a state of shock, I'm certain. For once someone, other than me, agrees with the most pugnacious broker in London.
News that a third party has made a bid approach means that it, like Smith, believes his interdealer broker Tullett Prebon is worth considerably more than the £670 million odd at which it was valued after it released its 2009 results on Monday.
Indeed, the mystery party probably accepts, as Smith certainly does, that it is worth considerably more than the £840 million it was worth when the shares jumped on news of the bid approach yesterday.
In fact, I wouldn't mind betting that Smith has a take-out bid value starting with a one and nine noughts in his mind. He could well be right.
Interdealer broking is the sharp end of financial markets, sitting as it does as the anonymous market-maker between banks' trading desks. It is now dominated by four players; Michael Spencer's Icap, Tullett Prebon, BGC Partners and GFI, the New York outfit set up by Essex-born Mickey Gooch.
All are arch-rivals, as witnessed by the £40 million poaching case between Tullett and BCG, which will be resolved in the High Court any day now.
The price of entry into this game is now far too high to allow a new entrant. The cost of hiring staff (and these are huge beasts when it comes to the number of employees) is phenomenal, not just in cash but in management terms.
The bidder for Tullett, be it Macquarie, the Stock Exchange or even GFI, knows all this. But it also has to buy into Smith's view of the future for the industry.
Ever since the collapse of Lehman 18 months ago IDBs have been under pressure. They provided the liquidity for many of the exotic instruments which brought the banks to their knees. It was they who suffered when banks slashed back their proprietary trading desks and saw volumes shrink.
IDBs thrive on volatile markets and high volumes of trading. Last year was not quite their annus horribilis but it wasn't far off. But looking forward there is every likelihood 2010 will see a strong bounceback.
If, and it's a big if, the Obama administration forces through the division of banks to leave prop trading as standalone businesses, that will actually lead to a great deal more trading through IDBs. There will be loads more Mom & Pop trading houses than there are banks, much in the way the hedge-fund industry burgeoned in the late 1990s as banks and fund managers parted ways.
Fears that over-the-counter trading, which is what IDBs do, will shift increasingly away from voice to electronic trading is also wrong. Growing sovereign debt worries and the shift away from exotic derivatives mean that banks will want ever more plain vanilla deals in bonds, interest rates and currency derivatives.
That's the kind of work the boys on the phones still do much better than any black box.
So my advice to anyone trying to buy Tullett is to get amateur boxer Terry Smith on side before going hostile. After all your version of a knockout blow will not be the same as his.
HRG's only problem is how to spend its cash
If there is one way to get through a recession it is to concentrate on the most important ingredient in any public company and that is cash.
Today Terry Duddy, chief executive of the Homebase and Argos retailer Home Retail Group, trots out the phrase that he is cautious about the year ahead but looks forward from a “position of financial strength”.
For once this is a chief executive who can fully justify that cliché.
At its year-end in February 2008 HRG had net cash of £174 million, in other words it went into the recession without debt. A year later and cash was up to £284 milllion. Now the figure is £410 million even after a £17 million top up of the pension fund. Few retailers can match this cash position.
It means that HRG can afford to hold out longer than most for the consumer recovery to kick in. It could also allow it to take over ailing rivals.
But if Duddy carries on generating cash at this rate and doesn't spend it he will soon have to start considering returning some of it to shareholders.
