Knight Capital, a US broker-dealer, has agreed to a merger with market making firm GETCO in a deal worth US$1.4 billion.
The new entity will be combined under a new publicly traded holding company and will offer market making and agency brokerage services across geographies and asset classes, leveraging Knight’s customer base and GETCO’s technology.
Knight shareholders, other than GETCO, will be offered US$3.75 per share, a 51% premium to Knight’s closing share price on 23 November. The deal is expected to be completed in Q2 2013, subject to shareholder and regulatory approval.
"The combination of Knight and GETCO will create a powerful, dynamic firm with an unmatched ability to deliver results for clients," said Daniel Coleman, CEO, GETCO. "Market participants will benefit from industry-leading services, and our larger capital base will provide strong support for existing operations, as well as an attractive currency for growth.”
Coleman will be made CEO of the new firm, while Knight CEO and chairman Thomas Joyce will serve at executive chairman of the board of directors. Knight’s current CFO Steven Bisgay will retain his role in the new firm.
"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 Joyce. "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 became an acquisition target after a challenging year that saw the firm lose US$440 million after a technology error that affected the firm’s market making system on 1 August. The firm was forced to seek recapitalisation from a number of customers and rivals, including GETCO, but saw its share price plummet by over 70%.
Industry observers have touted a Knight-GETCO combination as making strategic sense for GETCO in terms of its ambitions to diversify away from market making activity, such as through further development of its agency execution business.