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Last updated: November 29, 2012 12:06 am
Knight Capital, the US broker that came close to a collapse only four months ago, is at the centre of a bid battle after two private rivals submitted offers valuing the company at more than $1bn.
Hours after confirming receipt of a complex $1.3bn cash-and-share offer from high-frequency trading firm Getco, Knight received a competing bid from Virtu, people close to the situation said.
Virtu’s offer, worth at least $1.1bn, would take Knight private and retain the broker’s embattled chief executive Tom Joyce, these people said. The deal proposed by Getco, which is backed by private equity firm General Atlantic, would create an enlarged publicly listed company and a vehicle that would allow General Atlantic to realise its investment.
At the heart of the battle is a deal to create one of the biggest electronic trading and market-making companies on Wall Street. Knight is responsible for 10 per cent of daily US stock transactions.
Chicago-based Getco offered to buy the shares in Knight that it does not already own for $3.50 a share – an 18 per cent premium to its Tuesday closing price.
Virtu, which is backed by private equity firm Silver Lake Partners, privately submitted an all-cash bid of no less than $3 a share for Knight. Credit Suisse, Barclays and Citi are acting as advisers and financiers to Virtu, people familiar with the situation said.
Shares in Knight, which have risen steadily in recent days on speculation of a takeover approach, finished 15.2 per cent higher at $3.42.
Knight’s future has been unclear since August when it lost $461m on a software glitch that hit stocks on NYSE. Getco acquired a 15 per cent stake in Knight for $87.5m as part of a $400m bailout.
Companies such as Knight, Getco and Citadel have come to dominate trading in the US by using computer algorithms to make bids and offers in shares, futures, options and currencies at millisecond speeds.
They are also the biggest market-makers for retail brokers in US equity share trading. However, profits have been hit by weak equities trading volumes this year, while the industry also faces higher costs in the face of incoming regulation.
“The sector is facing decreasing volumes, the business margins are small and shrinking while the regulatory environment is hostile,” said Adam Honoré, research director at Aite Group, a trading industry consultancy. “There is likely more consolidation on the horizon.”
Getco’s two-stage proposal is designed to give Knight’s shareholders, including Blackstone, the asset management group, and investment bank Jefferies, a cash payment while also retaining the stock market listing. Jefferies, which led the Knight bailout that forced the company to sacrifice more than 70 per cent of its equity, would provide financing for a Getco offer, people familiar with the situation said.
Getco proposed that its chief executive Daniel Coleman would become the head of the enlarged company, with Mr Joyce becoming non-executive chairman.
Virtu, Knight, General Atlantic, Silver Lake Partners all declined to comment.
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