Knight gets higher price in Getco sacrificing cash certainty

Ameritrade, Jefferies

Other rescuers were Blackstone Group LP, brokerages Stifel Nicolaus & Co. and TD Ameritrade Holding Corp. and investment banks Stephens Inc. and Jefferies Group Inc. Virtu does not have a stake in the company.

The valuation of the combined firm depends on Getco, which is private and has made few financial disclosures, Patrick O’Shaughnessy, a New York-based analyst for Raymond James Financial Inc., wrote in a note to clients. While that makes the deal hard to evaluate, the price is more than owners would have received had no bidding contest occurred, he wrote.

“Knight’s intermediate-term earnings power was significantly harmed due to share dilution related to its Aug. 1 trading error as well as depressed industrywide trading volumes,” he wrote. “As a result, we believe that an acquisition price of $3.75 per share greatly surpasses what Knight would likely have garnered over the next year as stand- alone entity.”

Reverse Merger

Virtu had a fully funded offer at $3.20 a share to take Knight private with equity financing from Silver Lake Management LLC and debt and equity financing from Cerberus Capital Management LP, according to one of the people.

Gemma Hart, a spokeswoman for Silver Lake at Brunswick Group LLP, declined to comment. Peter Duda, a spokesman for Cerberus at Weber Shandwick, said he couldn’t immediately comment when reached after normal business hours.

Under the terms of the agreement today, existing Knight shareholders can receive $3.75 per share in cash or one share in the combined firm. The payout will be pro-rated if shareholders elect to receive more than $720 million in cash. Jefferies, which provided financing to Getco, agreed to limit the cash portion to 50 percent of their Knight shares, according to the statement.

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