Icap signs letter of intent to buy out APB

The world’s largest inter-dealer broker, Icap, has entered preliminary agreement to buy out privately owned Kentucky-based energy broker APB Energy. APB brokers gas, electricity, weather and coal derivatives on its online platform, True Quote, and through traditional voice brokering.

Todd Creek, APB chief financial officer, told RiskNews that although other firms were interested in buying APB, the broker has signed an exclusive letter of intent with Icap. “Icap is the right partner for us toaccelerate our resources and capital base,” said Creek, who declined to comment on the financial aspects of the proposed buy-out.

But the deal is likely to be significantly less than the upper-end $240 million Icap would pay for electronic bond and repo platform Brokertec – a deal that is currentlybeing reviewed by US competition authorities.

Both Icap and APB agree that the ‘hybrid’ voice and electronic combination of brokerage services is the correct business model for most over-the-counter derivatives contracts in the near term.

Icap has a 50-strong commodity derivatives business covering oils and oil products, bullion and precious metals, electricity, coal and weather derivatives – primarily out of London, plus small units in Sydney and Singapore – but it does not have a US presence. APB has European offices in Amsterdam and acquired Norwegian Energy Brokers in October 2001.

Dennis Crum, APB Energy’s chairman and chief executive, and other top APB executives, are expected to remain at the combined entity, should the deal pass the due-diligence stage.

“The energy markets have had a difficult few months, but we believe energy broking has significant long-term potential and that APB Energy can provide an outstanding entry for Icap into the US, Nordic and other regionalEuropean markets,” said Michael Spencer, Icap chief executive.

But speaking at the twenty-third Bügenstock derivatives conference in Lucerne, Switzerland, on September 6, Christophe Chassard, managing director of RWE Trading UK, said the OTC power market has fallen about 60% since September last year, following the exit of Dynegy, Aquila and now-bankrupt Enron, along with others, from the business.

An Icap spokesman said brokers are not involved in position trading familiar at the likes of Enron, adding that the energy broking market was “reasonably busy”.