Knight Capital Group Inc. capped its biggest rally in nine years after getting takeover offers from Getco LLC and Virtu Financial LLC, setting up a bidding war that may end its 17-year history as an independent company.
Getco’s cash and stock offer values Knight at $3.50 a share, an 18 percent premium from the Nov. 27 close, and retains its public listing, according to a filing yesterday from the Chicago-based high-frequency trader. Virtu submitted a bid to buy Knight for about $3 a share, a person with direct knowledge of the matter said. Another person familiar said the company’s offer was made yesterday. Knight was bailed out by six financial companies in August after losing more than $450 million in a trading malfunction.
The offers represent divergent structures for the surviving company and will force Knight’s board to choose between immediate cash and a value ascribed in part by the stock market’s view of Getco. Shares of the Jersey City, New Jersey-based market maker rose 15 percent to $3.42 yesterday, bringing its three-day rally to 37 percent, the most since July 2003.
“If you’re involved in a share deal, then you’re betting that their market is going to continue to grow and there is an upside after the deal, whereas in a cash-only deal the upside is you’re taking cash, and cash now,” said Sang Lee, managing partner at Boston-based Aite Group LLC, in a phone interview. “It really depends on how the shareholders look at the market that all these firms are in.”
Virtu, Getco and Knight are automated market makers. While Getco and Virtu operate across asset classes mainly on exchanges and similar platforms around the world, Knight focuses on U.S. equities. It’s also a wholesale market maker that services hundreds of retail brokers including Fidelity Investments and TD Ameritrade Holding Corp. by executing buy and sell orders for individuals. Neither Getco nor New York-based Virtu is in that business.
Knight’s volume yesterday was 47.3 million shares, more than 18 times its three-month daily average of 2.58 million shares through Nov. 23, according to data compiled by Bloomberg.
Knight declined to comment on Getco’s proposal, citing a policy to not discuss shareholder activities, according to a statement from the company. Doug Cifu, president and chief operating officer of New York-based Virtu, declined to comment.
Under Getco’s proposal, its chief executive officer, Daniel Coleman, would head the new company and Knight CEO Thomas Joyce would be non-executive chairman. The offer is a 41 percent premium to the stock’s closing price on Nov. 23, the filing said.