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CST to Boost CDS Market Share with Chapdelaine Acquisition

UK broker Collins Stewart Tullett (CST) is boosting its market share in credit derivatives in North America with the acquisition of New York broker Chapdelaine Corporate Scurities for $95 million in cash.

It says it would combine the company with Tullett Prebon when the two parts of Collins Stewart Tullett demerge in December to form an inter-broking business and a stockbroking business.

Of the consideration, $57 million is payable upon completion and $38 million is payable over the next three years, subject to the business meeting certain performance targets, and with lock-in arrangements to prevent the defection of key staff.

While Chapdelaine’s profit margins were now about 10%, they would increase to match the 18% earned by CST, according to Terry Smith, chief executive. Quoted in the FT, he says the deal would give CST $118 million in extra annual revenue and deliver over 20% return on capital employed.

The deal will give Collins Stewart Tullett a 20% share of the credit default swap market in the US, placing it second behind GFI, which has 26%, and moving Icap to third position with 17%, based on market share calculated by Icap in June.

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