After intense and long negotiations, Gain has finally decided to reject FXCM’s $195 million hostile takeover bid. Instead, Gain made a 180-degree turn and opted to buy GFT for $107.8 million.
Gain‘s purchase of GFT, which was broadcasted towards the end of last week, will be done through a $40 million cash deal, a 5-year $40 million note, and the issuance of roughly 4.9 million shares of Gain common stock. It will end with $80 million of GFT cash at the end. The brand identities of both Gain and GFT will be retained.
Initially, market participants were happy with the deal. Right after the deal was announced, Gain’s share price rose 4.57% to $5.86. After they digested the news, however, Gain’s share price plummeted to end the day at $5.44, 3.20% lower from where it was prior the announcement.
It seemed that shareholders think that purchasing another company was not a good decision, given Gain’s income. In 2012, Gain recorded a loss of $32.7 million. Gain also reported a $2.4 million loss for Q1 2013.
A minor stockholder also expressed his criticism on the deal in a letter. The letter read, “it seems hard for any reasonable board member to believe a strategy of pursuing acquisitions could possibly generate more value for Gain shareholders than the significant value they could achieve with a sale of the company [to FXCM] today.”
Apparently, what drew Gain CEO Glenn Stevens and the rest of the board to buy GFT was its strong standing in the forex scene. They took a good look at GFT’s technology, reach, partner relationships, and volume and liked what they saw. Furthermore, GFT boasts of solid reputation and capable management team.
The executives of Gain also crunched the numbers and saw that they stood to gain a lot from the purchase. According to Stevens, it could lead to $35 to $45 million in “operating synergies” within the first year alone, and this figure could eventually grow to a combined revenue run rate of $77 million in EBITDA (earnings before interest, taxes, depreciation, and amortization).
Now that the buyout has been announced, I turn to you, my dear readers, to ask you how you feel about this deal. How do you think it will affect the retail forex industry? Are traders better off now that these two giants have merged?