The Global Electronic Trading Company has submitted a bid of approximately $1 billion for Knight Capital, the Jersey City market maker that suffered a major technical meltdown on August 1.
The high-frequency trading and electronic market making firm known as GETCO has bid $3.50 a share for Knight’s stock and proposes a two-step merger.
The price, the Chicago firm said in a letter to Knight’s board values Knight’s shares at a price at a 41% premium to the closing price on Friday and a 7.4% “premium to tangible book value.” Knight’s shares have been bid up this week, after reports surfaced Saturday that Knight might sell all or part of itself.
Knight suffered a $547.6 million loss on August 1, when newly introduced algorithms send out waves of erroneous orders onto the nation’s exchanges. A series of investors, including GETCO, rescued the company. At that time, Knight sold 70% of shareholders’ equities to the new backers, which included Jefferies Group, Inc., which conceived and structured the $400 million investment, as well as Blackstone, GETCO, Stephens, Stifel Financial and TD Ameritrade Holding Corporation.
“I am convinced that this Merger would unlock tremendous value for the shareholders of both firms while establishing a global leader in market-making and agency execution,’’ GETCO chairman Daniel Coleman said in the letter, dated November 27.
Knight said it “does not comment on interactions with shareholders or shareholder activities.” GETCO is a Knight shareholder.
Also expected to make a bid is Virtu Financial, another leading electronic trading firm and market maker.
In the GETCO case, the two market makers would first merge, with GETCO shareholders receiving approximately 242 million newly issued shares of Knight and warrants to purchase roughly 69 million existing shares of Knight common stock. The 57 million shares of Knight now owned by GETCO would be retired.
Then, GETCO would make a tender offer for 154 million or 50% of shares it doesn’t already own in Knight, from existing shareholders. At $3.50 a share, that 50% would be worth $539 million, putting overall value at approximately $1 billion.
The tender offer would “launch before the closing of the merger and would be contingent upon, and close immediately after” the combination of the two firms.
After the merger, Coleman would become, under the proposal, the chief executive officer, succeeding Tom Joyce. Joyce would become non-executive chairman of the company’s board.
The board would also take in three Knight directors.
GETCO put a target of Monday, Dec. 3, on reaching a merger agreement, in its letter to Knight’s board.
