Knight Capital: Let the Bidding War Begin!

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Chicago-based high-frequency trader Getco LLC has officially offered to buy Knight Capital Group (NYSE:KCG) for about $1 billion in cash and stock, or about $3.50 per share. Getco’s bid countered an offer from Virtu Financial LLC, which offered a cash takeover of Knight Capital for $3 per share.

With competing offers on the table, many are expecting a bidding war to begin.

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According to Bloomberg, “Getco is proposing a two-step reverse merger in which Knight would be reorganized as a holding company with Getco receiving 242 million newly issued shares and warrants to buy 69 million more. The company would then make a tender offer for up to 154 million Knight shares — about half those outstanding, excluding Getco’s stake — at $3.50, or about $539 million. Getco’s existing stake in Knight, about 57 million shares, would be retired.”

How Will This Affect Knight Capital’s Stock?

Knight Capital made headlines at the beginning of August when it lost about $461 million due to a technical error. The company’s stock price crashed 75 percent pretty much over night and the firm was only saved thanks to a bailout by a consortium of investors led by Jefferies Group (NYSE:JEF) and Blackstone Group (NYSE:BX). Since then, the company’s stock has floundered at less than $3 per share.

With its stock price eviscerated, Knight Capital became a ripe target for takeover in an industry suffering from overcapacity. News about the buyout and possible bidding war has brought the stock up over 36 percent in the last five trading days and on November 28 shares are trading about 10 cents shy of the $3.50 offered by Getco.

Knight Capital’s stock price is bound to shift with any new offers should a bidding war take place. The company will likely hold out and wait for the best offer possible in order to return value to those who bailed it out and are now shareholders.

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