Some Sort of Deal Looks Likely - Will They "Split the Baby?"

[ by Melanie Gretchen ]

Knight Capital Group is at a cross-roads with sweetened buyout offers from Getco Holding Co. and Virtu Financial. By late Monday, the Board of Directors for this New Jersey-based market maker had still not reached a final decision, as they continued to weigh the different structures of the bids and the motivations of some of its investors.

On the Table. Talks began last month when Getco made an unsolicited bid for Knight;  Virtu's bid, also unsolicited, came shortly thereafter.  What would each bring to the table:

• Getco:  increased the amount of cash to its cash-and-stock offer;  Getco would merge into Knight to create a new publicly-traded company.  Getco's bid is financed in part from Jefferies, which helped lead a rescue of Knight earlier this summer and became a major investor.  Getco would benefit from the deal to help it recover from lower earnings this year - as profits are down ~60%.

• Virtu:  boosted its all-cash bid to $3.20 a share, or around $1.6 billion;  Virtu would take Knight private.  Virtu's financing is backed by private equity firm Silver Lake.  Both would find a powerful ally in Knight, whose market-making unit has rivaled Getco and Virtu's.
   

While Knight has, in recent years, diversified its businesses, the U.S. market-making operation is still the main focus for both bidders.  Knight's market making unit has remained profitable despite a market-wide trading slump.

For further details, go to [Reuters, 12/18/12].