The Global Electronic Trading Company or Getco LLC is all set
to acquire the troubled automated trading firm
Knight Capital Group, Inc.
) for $1.4 billion. The cash and stock deal is expected to close
in the first half of 2013.
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Under the terms of the deal, Knight Capital and Getco LLC will
combine to form a new publicly-traded company. The shareholders
of Knight Capital will be allowed to opt for either $3.75 per
share in cash or one share of stock in the new holding company.
The cash consideration will be subject to pro-rata allotment if
the holders choose to receive more than $720 million in cash.
Jefferies Group, Inc.
) and its associates (the largest shareholders in Knight Capital)
have decided to restrict their cash portion to 50% of their
shareholding to ensure that the remaining shareholders can
receive their cash considerations in full.
Moreover, Getco LLC will receive 233 million shares of the new
holding company and nearly 57 million Knight Capital shares it
currently owns will be retired. Getco LLC's members will receive
around 75 million warrants in the new holding company. On the
basis of the tangible net worth of Getco LLC and Knight Capital,
as of September 30, 2012, pro forma tangible book value of the
new company is likely to be about $3.75 per share.
Knight Capital - considered as one of the most advanced trading
platforms - lost nearly $461.1 million owing to a software
malfunction in August this year. The malfunction sent umpteen
number of accidental orders to the market over a 45-minute
period, leaving Knight Capital in a precarious financial
Knight Capital had to seek rescue financing to the tune of $400
million. A group of investors - including Getco LLC, Jefferies
TD Ameritrade Holding Corporation
The Blackstone Group LP
Stifel Financial Corp
), and Stephens Inc. - provided the finance, in exchange of over
70% stake in the company.
We believe that the merger between Knight Capital and Getco LLC
will result in a more powerful trading platform, given the huge
resources of both the companies. This will help the market
participants to avail better facilities and make trading much
Currently, Knight Capital retains a Zacks #3 Rank, which
translates into a short-term Hold rating.