By John McCrank
NEW YORK, Dec 18 (Reuters) – Knight Capital Group’s
board was split between two competing offers for the firm after
a meeting on Monday where suitors Getco Holding Company LLC and
Virtu Financial LLC presented their sweetened bids to Knight’s
directors, sources involved in the talks said.
By late Monday, Knight had not reached a decision on which
offer to accept, as it weighed different structures of the bids
as well as the motivations of some of its own investors,
according to one of the sources. Still, a deal of some kind for
the electronic trading firm was increasingly looking more
likely than not, the source added.
Getco recently increased the amount of cash to its
cash-and-stock offer for Knight, which executes around 10
percent of U.S. equity trading volume, valuing it around $1.8
billion, while Virtu boosted its all-cash bid to $3.20 a share,
or around $1.6 billion, the source said.
Chicago-based Getco’s deal would see it merge into Knight to
create a new publicly traded company, whereas Virtu would take
Knight private.
Jefferies Group Inc, which helped lead a rescue of
Knight earlier this summer and became a major investor, is
helping to finance Getco’s bid, leading some at Knight to
question whether it was merely looking to take profits from the
investment, the source said. Jefferies was also instrumental in
bringing Getco into the investor group at the time, the source
said.
A spokesman for Jefferies had no comment.
Knight is also debating whether closely held Getco was
looking at the deal as a way to find a stronger partner, as
Getco’s profits are down around 60 percent this year, the source
said.
Virtu has lined up financing for its bid and is backed by
private equity firm Silver Lake, a Virtu investor, separate
sources s a id.
A Getco spokeswoman was not immediately available for
comment. A Knight spokeswoman and a Virtu spokesman declined to
comment.
MARKET-MAKING BUSINESS EYED
The discussions around Knight come as both Getco and Virtu
eye its U.S. market-making business, which uses computer models
to match buy and sell orders in stocks and options. The
business, one of the largest in the country, has remained
profitable despite a market-wide trading slump.
Getco and Virtu have market-making units that compete
against Knight.
Knight also runs bond and foreign exchange trading
platforms, and owns a reverse mortgage lender as well as a stake
of about 20 percent in Direct Edge, the No. 4 U.S. cash equities
exchange.
The Jersey City-based firm, however, became vulnerable to a
takeover this summer when a software glitch left it nearly
bankrupt, leading a group of investors to step in with $400
million in emergency capital.
The rescue deal was led by Jefferies and included Getco, as
well as Blackstone Group LP, TD Ameritrade Holding Corp
, Stifel Financial, and Stephens Inc.
As part of the deal, Getco investor General Atlantic, as
well as Blackstone and TD Ameritrade, were given seats on
Knight’s board.
The latest discussions started after Getco made an
unsolicited bid late last month for Knight, which was followed
by Virtu’s bid, which was also unsolicited.
