[PDF] - Acquisition of EBS Update for Analysts April 2006 A reminder: PDF Document

SLIDE 1

1

Michael Spencer – Group CEO Mark Yallop – Group COO

Acquisition of EBS

Update for Analysts April 2006

SLIDE 2

2

A reminder: ICAP goals and strategy

Goals

To be the leading global intermediary in the

wholesale OTC markets by a clear margin

35% share of overall market revenues
50% of profit derived from electronic broking
Provide customers with more efficient electronic

trade execution, reduced integration costs and deep liquidity across a wide product range

Maintain close long term relationships with

Strategy

customers

Develop the business through the combination of

people and technology

Extend product and service innovation
Grow the business, both organically and by

selective acquisition

SLIDE 3

3

Strategic rationale for transaction

ICAP will be the largest global

electronic broker in liquid, commoditised OTC markets providing customers with:

– the broadest product range – the widest electronic footprint – strong post trade support

ICAP to create a single global

multi-product platform with significant further growth potential

Moves ICAP a step closer to
ffering full multi-asset

electronic trading

ICAP electronic revenues will more

than double, to ~$375m pa (2005)

Transaction raises ICAP overall

market share from 28% to ~32%

Proportion of Group profits from

electronic broking estimated to rise to ~33% of total

Combined global network will cover

~1,500 customer installations plus further 470 users with secure internet access

Significant economies of scale

achievable over time through combining and leveraging technology networks and platforms

SLIDE 4

4

EBS: A pioneer in e-broking

Formed in September 1993 as a partnership of the leading FX

market-making institutions

Novel introduction of pre-screened credit and globally distributed

technology architecture

Origins

EBS Prime
EBS Spot Ai
EBS Live

Innovation ….

More than 2,000 traders on 800 dealing floors across the globe
Average of USD 132 billion in spot FX/day
The market leader for currency pairs making up ~60% of global volumes
Average of 700,000 oz in gold and 7,000,000 oz in silver/day

Global market leader….. …. Customer Focus….. ….

Strong, globally recognised brand
80 sales staff
24 customer support staff

SLIDE 5

5

EBS business profile

60 80 100 120 140 1 Q 1 1 Q 2 1 Q 3 1 Q 4 1 Q 5 1 Q 6 EBS Daily Spot FX volumes

US$ billions

EBS Daily Spot FX volumes

US$ billions 100 200 300 400 500 600 EUR/USD GBP/USD USD/JPY EUR/GBP EUR/CHF USD/CHF EUR/JPY AUD/USD USD/CAD 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Market Volume and EBS Share by Currency Pair

US$ billions/%

Market Volume and EBS Share by Currency Pair

US$ billions/%

Leading market share in currency

pairs that comprise 60% of global FX turnover

Over 60% of London market since

2000

Over 88% of Tokyo market
CAGR volume growth 17% since

2001

1Q 2006 volume average $132bn,

peak $191bn

1Q 2006 counterparty growth +15%

year on year

Volume EBS Share

SLIDE 6

6

EBS business profile

EBS Revenue by Category

.

EBS Revenue by Category

.

EBS Revenue by Product

.

EBS Revenue by Product

.

Europe 15% UK 15% Market Data 11% Core Spot 72% Ai 9% Prime 8% Europe 15% UK 15% Other 1% Transaction 74% Access 14% Market Data 11%

EBS Revenue by Region

.

EBS Revenue by Region

.

Americas 28% Asia 25% Europe 47%

SLIDE 7

7

EBS financial profile

Highlights US$ millions Highlights US$ millions Notes . Notes .

Year to 31/12

2004

Audited

2005

Audited

2006

Budget

Revenue 187 206 227 Expenses¹ 171 169 170 Operating profit¹ 16 37 57

Operating margin

9% 18% 25%

During Q1 2006 EBS operating

profit is significantly ahead of budget

Cash generation ~100% of profit
Expenses breakdown in 2005

was:

Staff: 40%
Networks/Comms: 26%
Commission:

6%

Other: 28%
Gross assets of EBS were

$221m, including cash of $55m at 31 December 2005

¹Before amortisation of intangibles and exceptional items. EBS results are on a UK GAAP basis but no significant differences are expected under IFRS

SLIDE 8

8

EBS technology

Trading workstations: 34% of capacity
Peak quotes/day: 32% of capacity
Peak deals/day: 76% of capacity
Availability 99.999%

With ICAP synergies … . Robust Scalable Platform …

~185 technology staff

Strong IT team .

Multiple data centres in US, UK
Overlapping customer networks
Duplicated network operations and field support

SLIDE 9

9

Developments in the FX market

Total Market Daily Spot FX Turnover US$ billions Total Market Daily Spot FX Turnover US$ billions Key Trends Key Trends

Continuing global macro-economic

imbalances

Increasing proprietary risk taking

at banks

Growth of single and multi-dealer

bank portals

Growth of leveraged

investors/hedge funds

Growth of Prime Broking
Development of algorithmic trading

engines

Growth in trade flows
Liberalisation of emerging markets
Role of other ECNs

218 301 111 213 58 108

100 200 300 400 500 600 700 2001 2004

Source: BIS Triennial Survey

Interbank Non- bank Financial Institutions Non- Financial Institutions

SLIDE 10

10

Global networks/customers distribution

EBS USERS ICAP USERS, IN ADDITION 470 USERS OVER SECURE INTERNET CONNECTIONS * Western Europe includes Austria, Belgium, France, Germany, Ireland, Luxembourg, Netherlands and Switzerland

Western Europe

SLIDE 11

11

Electronic competitive landscape: products

North America Europe Asia

ICAP CST Tradition GFI BGC/eSpeed MTS Reuters Creditex Governments Agencies MBS Corporates Repo CDS Spot/Fwd FX F+O Governments Corporates Repo IR Derivatives CDS Spot/Fwd FX F+O FX Options FX Options Governments Corporates Repo Spot/Fwd FX F+O FX Options Full voice plus electronic capability Voice capability only Electronic capability only

SLIDE 12

12

Electronic competitive landscape: revenues

200 400 600 800 1000 1200 1400 1600 1800 2000 Deutsche Boerse ICAP Euronext CME NASDAQ CBOT ICAP EB + EBS 2005 LSE ICE eSpeed Intl Securities Ex 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

2005 Revenues US$ m (LHS) Market Capitalisation US$m April 2006 (RHS)

Source: Company Data, Morgan Stanley Research estimates

SLIDE 13

13

Transaction details

A cash payment of US$ 775 million for 100% of the share capital
f EBS

Cash Consideration Share Alternative…. Overall Cost….. ….

EBS shareholders may elect to receive, in aggregate, up to 36.1

million new ICAP shares in lieu of up to one third of the cash payment to which they would otherwise have been entitled

Individual EBS shareholders may receive further ICAP shares as

part of their consideration in lieu of cash, to the extent that other shareholders have elected to receive less than their full entitlement of new ICAP shares.

Any new ICAP shares issued as part of the transaction will be

locked-up for a period of six months.

If the full number of new ICAP shares being offered to EBS

shareholders is taken up, the total consideration would be $825 million, comprising: – $517 million in cash and – 36.1 million new ICAP shares (with an aggregate value of $308 million based on the closing price of an ICAP share of 477.25 pence and spot £/$ exchange rate of 1.78)

SLIDE 14

14

Financing arrangements

Underwritten Facility from JP Morgan for up to £400 million

equivalent provides, together with internal cash resources, certain funds to close the deal

Underwriting …

A mix of term and revolving syndicated facilities is being

arranged to take out the underwriting and provide term funding

Final maturity of these facilities will be 5 years
Repayment will be from the substantial cash flow generated

by the Group and the facilities are structured to allow the Group maximum flexibility

These facilities will also be used to re-finance other senior

debt facilities

Take-out … .

SLIDE 15

15

Consolidated regulatory capital requirements

Under the current Capital Adequacy Directive a firm that is

subject to the full consolidated regulatory capital requirements must fund the acquisition of goodwill with equity

Based on its low risk profile the FSA have been able to grant

ICAP a waiver to modify its consolidated regulatory capital requirements (http://www.fsa.gov.uk/register/pdf/A571576P.pdf)

This modification removes the requirement to fund the acquisition
f further goodwill with equity; the transaction can be funded

entirely with “senior” debt

2006 … .

On 1 January 2007 the Capital Requirements Directive (“CRD”)

comes into effect

All existing waivers will be revoked
Under the CRD a group will only be able to modify the

consolidated capital requirements in the way noted above if it has no exposure to market risk in its broking / trading activities

The group has had extensive discussions with the FSA and will

be taking all steps necessary to ensure that it will maintain its existing modification to the consolidated capital requirements

2007 and beyond … .

SLIDE 16

16

Transaction synergies

IT Network: $9m IT Infrastructure: $10m Other IT: $2m Property and other: $11m

5 10 15 20 25 30 35 2006/7 2007/8 2008/9 Full Impact

Projected Transaction Synergies US$ millions Projected Transaction Synergies US$ millions Sources of Synergies US$ millions Sources of Synergies US$ millions

Technology Non-Technology $m

$24m

Cost to Achieve

Note: The costs to achieve the synergies of $24 million will be treated as an “exceptional” item in the income statement in 2006/7 and 2007/8

$32m

SLIDE 17

17

Financial impact

Income Statement….

Total ICAP group electronic revenues including EBS ~$375m (2005)
Electronic operating profits ~33% of total ICAP Group
Operating profit margin on incremental revenues

– ~26% before synergies – ~41% after synergies

Compensation cost/revenue ratio on incremental revenues

– ~30% before synergies – ~23% after synergies

Balance Sheet*…. Earnings…..

Total debt $600m - $850m; depending on the take up of equity offer
Total goodwill and other intangibles ~$770m; separately identifiable

intangibles (principally customer lists) ~50% of this will be amortised in the income statement

Accretive to adjusted EPS in 2006/7

Pricing*…..

Price represents a multiple of 16.1x 2006 post-tax and

synergy earnings, equivalent to12.9x post-tax earnings on realisation of full synergies

SLIDE 18

18

Integration strategy

All ICAP electronic broking operations will be integrated in a single,

new, global electronic division

This division will be run by Jack Jeffery, CEO of EBS
David Rutter, CEO of ICAP Electronic Broking NA will be deputy CEO
f the new division
Jack Jeffery will report to Michael Spencer
All technology resources of the combined group will be managed on an

integrated basis and report to Jay Spencer, ICAP Global Chief Information Officer

A dedicated project management office will oversee the process of

integration, reporting to Steve McDermott, Executive Director, ICAP plc

Further details will be provided with the Group’s full year results

announcement

SLIDE 19

19