Knight Capital – Getco Merger Already Under Investigation

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Knight Capital Group (NYSE:KCG), the high-frequency market-making firm that nearly went bankrupt over the summer due to a $400 million trading glitch, agreed on Wednesday to merge with GETCO Holding Company, also a market-making firm. Just as the announcement made the rounds, a press release issued by Levi & Korsinsky, LLP declared that the law firm is investigating Knight Capital’s board of directors for possible breaches of fiduciary duty.

That was fast, what happened?

In short, “The investigation concerns whether the Knight Board of Directors breached their fiduciary duties to stockholders by failing to adequately shop the Company before entering into this transaction and whether Getco is underpaying for Knight shares, thus unlawfully harming Knight stockholders,” according the law firm’s press release.

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The legal group indicates that Knight Capital’s stock has a reported book value of $6.70 per share, 78.6 percent higher than the $3.75 per-share deal with GETCO, which values Knight Capital at $1.4 billion.

However, Knight Capital’s release points out that “The $1.4 billion purchase price represents a 51 percent premium to Knight’s closing share price on November 23, 2012. The amount also equates to a 15 percent premium to Knight’s tangible book value, as of September 30, 2012.”

Regardless of the details, other market makers and investment firms like Cowen Group, Inc. (NASDAQ:COWN), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and even the client services segment of Goldman Sachs (NYSE:GS), with its hand in market making, will have their eyes on the combined Knight Capital-GETCO entity.

GETCO chief executive Daniel Coleman said that “The combination of Knight and GETCO will create a powerful, dynamic firm with an unmatched ability to deliver results for clients.”

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