Knight Agrees to Merge with GETCO
December 19, 2012
Knight Capital Group and GETCO Holding Company Wednesday said they intend to merge, to create a publicly traded firm that will make markets in a wide variety of securities.
"After a thorough evaluation, the Knight Board of Directors unanimously concluded that a merger between Knight and GETCO provides the best possible value creation opportunity for Knight's shareholders," said Thomas M. Joyce, Knight's Chairman and Chief Executive Officer. "The transaction provides near-term certainty in the form of cash, while also allowing shareholders to benefit from participation in the future success of the firm.’’
Knight and GETCO will pursue completion of a $1.4 billion cash and stock deal that will leave the combination as a publicly traded company. Knight had also been pursued by Virtu Financial, another market maker, which had made an all-cash offer.
Under the agreement with GETCO, existing Knight shareholders can elect to take $3.75 per share in cash or one share of common stock of the new holding company. No more than $720 million in cash will be paid out.
Jefferies & Company, which led an August rescue of Knight and which, with affiliates, is the largest shareholder in Knight, agreed to take half cash and half shares.
Based on the tangible net worth of GETCO and Knight as of September 30, 2012, pro forma tangible book value of the combined company would be approximately $3.75 per share.
The merger will bring together Knight’s wide net of customers for its existing market making operations, which ranks at the top of liquidity creators on the New York Stock Exchange. GETCO brings highly-regarded lightning-fast deal-making technology.
"The combination of Knight and GETCO will create a powerful, dynamic firm with an unmatched ability to deliver results for clients," said Daniel Coleman, GETCO's Chief Executive Officer, in a statement
Coleman will become the chief executive officer of the combined firm, whileJoyce will serve as executive chairman of the Board of Directors. Steven Bisgay, Knight's Chief Financial Officer, will continue in that role for the combined company.
The transaction is expected to be completed in the second quarter of 2013, subject to shareholder and customary regulatory approvals.
The $1.4 billion purchase price represents a 51 percent premium to Knight's closing share price on November 23, 2012.
Knight nearly imploded in August, after a “large software bug” in nearly installed code sent waves of erroneous orders onto national exchanges. That episode cost Knight $457.6 million. Knight’s shareholders lost 70% of their equity that month, to the rescue group led by Jefferies.
GETCO has obtained commitments from affiliates of Jefferies for the financing necessary to complete the transaction, including refinancing all existing Knight and GETCO debt. Private investor General Atlantic will make an additional $55 million equity investment, which will bring its total investment in the new company to over $400 million.