Getco is proposing a two-step reverse merger in which Knight would be reorganized as a holding company with Getco receiving 242 million newly issued shares and warrants to buy 69 million more. The company would make a tender offer for up to 154 million Knight shares -- about half those outstanding, excluding Getco’s current stake -- at $3.50, or about $539 million. Getco’s existing stake in Knight, about 57 million shares, would be retired.
“They think there’s long-term value in the company because they’re making a bid and because of how the warrants are structured,” Keith Ross, CEO of PDQ enterprises LLC, a Chicago- based dark pool operator, said in a phone interview. He was head of Getco from 2002 to 2005. “The warrants give them an incentive to help the company be profitable. This is an additional carrot.”
Two people said automated market-maker Virtu plans to assert in talks with Knight that the offer is more attractive than the bid announced yesterday by Getco because it is for all of Knight’s shares and is more likely to be completed, according to two people familiar with the matter.
The proposal would be financed by capital contributed by Silver Lake Management LLC, which owns a stake in Virtu, other private equity firms and individuals, and a loan commitment of at least $1 billion led by Credit Suisse Group AG, another person said. All three spoke on condition of anonymity because the talks are private.
“An all-cash offer is going to trump mixed consideration, but we still don’t know where Virtu’s offer is going to be exactly above $3, while we know that Getco is at $3.50,” Sachin Shah, a special situations and merger arbitrage strategist at Tullett Prebon Americas Corp. in Jersey City, said in a phone interview. “The board will have to evaluate the merits of each offer and it may be looking for more from a white knight or from these two bidders.”