(By Balachander) Knight Capital Group Inc. (NYSE: KCG) shares jumped in early Wednesday trade after trading firm Getco Holding Co proposed to acquire the financial services provider for $3.50 a share.
The proposed merger represents a 41 percent premium to the closing price on November 23, 2012, the last day before rumors of possible offers for Knight were published in the press, and a 7.4 percent premium to tangible book value.
The combined company would be a leader in market-making and agency execution across geographies, market structures, and asset classes, GETCO wrote in a letter to Knight's board.
Jersey City, New Jersey-based Knight is engaged in market making and trading across global equities, fixed income, foreign exchange, options and futures. The company had revealed a loss of $440 million from a trading glitch in August.
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"GETCO is prepared to move expeditiously to complete the due diligence process and finalize the terms of a definitive agreement," GETCO CEO Daniel Coleman said. "We believe that we could enter into such an agreement by no later than December 3, 2012 and we propose that the parties enter into an exclusivity agreement for that period."
The merger would be accomplished through a two-step process that is designed to provide maximum flexibility for Knight shareholders, a regulatory filing showed.
The first step would be a Knight holding company reorganization / GETCO merger with GETCO shareholders receiving approximately 242 million newly issued shares of Knight and warrants to purchase Knight common stock. As a result of this first step, the 57 million shares of Knight currently owned by GETCO would be retired.
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The second step would be an issuer tender offer for up to 154 million shares of Knight (representing 50 percent of the outstanding shares of Knight not currently owned by GETCO) at a cash price of $3.50 per share (total consideration of roughly $539 million).
Knight, meanwhile, confirmed that it is in receipt of a proposal letter from Getco.
According to NASDAQ.com, as of June 2012, Knight was the seventh largest provider of liquidity for NASDAQ securities and number eight for total volume.
The company has four operating segments: Market Making, Institutional Sales and Trading, Electronic Execution Services and Corporate and Other.
KCG shares traded 16.33 percent higher at $3.45. The stock has been trading in the 52-week range of $2.24 to $13.59.