Getco, Virtu make rival bids for Knight Capital: sources

Wed Nov 28, 2012 5:24pm EST
 

By John McCrank and David Henry

(Reuters) - Rival electronic trading firms Getco Holding Co and Virtu Financial LLC have made competing bids for Knight Capital Group, valuing the company at a minimum of $1.1 billion, as they both eye Knight's lucrative market-making business, sources said.

Getco proposed a $1.4 billion cash and stock deal that would see it merge into Knight as a public company, while Virtu offered a minimum of $1.1 billion in cash for what would end up a privately held firm, sources familiar with the situation said on Wednesday.

Knight's KCG.N U.S. market-making business uses computer models to match buy and sell orders in stocks and options and executes around 10 percent of U.S. equity trading volume. It has managed to stay profitable amid a steep market-wide slump in equity trading along with increased competition.

There is no guarantee either firm will clinch a deal for Knight, which was made vulnerable to a takeover this summer when a trading glitch left it nearly bankrupt before a group of investors stepped in with $400 million in emergency capital.

"We think it absolutely could continue to operate and recover standalone over time," said Niamh Alexander, an analyst at Keefe Bruyette & Woods. "However, the overhang of six large shareholders along with the others won't make for an attractive stock."

Knight's shares jumped 15.2 percent on Wednesday, and were up 37.3 percent since Friday's close, before word of the behind-the-scenes talks surfaced. Still, the stock was worth just a third of its value from the day before the trading glitch.

REVERSE MERGER

Getco's proposal effectively would see it bought by Knight, while Getco's management, led by Chief Executive Daniel Coleman, would take control of the combined firm. The new firm would be publicly traded, allowing General Atlantic, which invested in Getco in 2007, to exit its investment.   Continued...

 
Traders work at the Knight Capital kiosk on the floor of the New York Stock Exchange August 3, 2012. REUTERS/Brendan McDermid