Why BGC Is Skyrocketing on a Simple Asset Sale

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of brokerage company BGC Partners (NASDAQ: BGCP  ) soared a whopping 42% today after agreeing to sell its electronic Treasury trading platform to Nasdaq OMX Group (NASDAQ: NDAQ  ) for $750 million in cash.

So what: The total consideration for the deal -- up to $1.23 billion, including an earn-out of up to $484 million of Nasdaq common stock to be paid over 15 years -- is roughly equal to BGC's closing market cap on Monday, so it's obviously a huge value-maximizing transaction for the company. Nasdaq, meanwhile, is making the move to enter the electronic fixed-trading business, but given its own stock's 10% plunge today, it might be paying too high of a price to do it.

Now what: The $750 million one-time payment is expected to be accretive to BGC's EPS upon closing, which should be sometime in mid-2013. "This transaction should better enable investors and analysts to place an accurate valuation on BGC's assets post-closing," BGC Chairman and CEO Howard Lutnick said. "We will also have the financial wherewithal to maintain our dividend for the foreseeable future and to repurchase common shares or units." With the stock now up about 50% over just the past three months, however, I'd wait for a little of the excitement to wear off before buying into that bullishness.

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  • Report this Comment On April 02, 2013, at 2:01 PM, 0b1knob wrote:

    When the deal goes through the company will have about $4.50 cash per share. Insiders already own a significant portion of the company. I think an insider buyout is coming soon. Its substantial dividend (8.7%) seems safe for the time being.

    Most of the time its foolish to chase a stock higher but in this case I don't think the market has discounted how positive this news is. Take a position and enjoy the ride, it could be a wild one.

  • Report this Comment On April 03, 2013, at 7:39 AM, MichaelHamilton wrote:

    The total consideration for the deal -- up to $1.23 billion, including an earn-out of up to $484 million of Nasdaq common stock to be paid over 15 years -- is roughly equal to BGC's closing market cap on Monday

    Actually- the size of the deal is double BGCP closing marked cap on Monday which was approx $600m, especially after the SP had dropped 7.5%Monday.

    looking back, these shares have been over $8.00 in the past so I think a 50% rise is really only a partial correction of a company that was already deeply undervalued.

    Note that the platform that was sold only contributed $100m of the BGCP $1700 annual revenue so that really is a small part they sold and they got an extrememely good price for it.

    The BGCP management are particularly SAVVY. Note that they bought Knight Frank at a knockdown price just before the property market started picking up. The real estate part of BGCP is going to have a good run over the next few years.

    There is no other play on the real estate market that offers this yield plus a ton of cash in the bank to make other aquisions.

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