Knight Capital Surges on Deal Talk

Andrew Klips |

Wall Street EarningsShares of Knight Capital Group Inc. (KCG) are on the rise Monday morning after a Friday report by the Wall Street Journal that the financial trading company may be looking to sell its profitable market-making business.  According to the article, high-speed trading firms such as Getco LLC and Virtu Financial LLC are expected to make proposals to buy the biggest arm of the Jersey City, New Jersey company.

Getco already has holdings in Knight as one of six financial firms that provided funds to help the company avert bankruptcy in August after $460 million-worth of trading errors stemming from malfunctioning software that depleted all of Knight’s capital.  If all the preferred shares were converted, Getco would currently own about 16 percent of Knight.  Virtu has no stake in Knight at this time.

Knight’s trading debacle was the result of new software being installed that conflicted with existing software that was supposed to have been deleted, causing a flood or orders and trading volume surges that left Knight with hundreds of millions of dollars worth of orders that it had to sell at a loss.  Shares plummeted from over $10 each to as low as $2.27 in two days when the reports hit and have struggled to regain any of the ground.

The group of six saviors, which included TD Ameritrade (AMTD), Jefferies Group (JEF), the Blackstone Group (BX), Stifel Nicolaus (SF) and Stephens Inc. in addition to Getco, agreed to a highly-dilutive deal to provide Knight with $400 million so they could keep their doors open early in August.

The possibility of a sale is just that…a possibility.  Knight told employees in a memo over the weekend that it would only pursue such a partnership or any type of transaction if it would serve to increase value for stakeholders and the company, according to Reuters.  The company doesn’t comment on rumors, according to Knight spokeswoman Kara Fitzsimmons.

The news of a potential sale spurred KBW to upgraded Knight from “underperform” to “market perform,” saying that a deal would “make sense strategically.”

Shares of KCG gapped upward more than 12 percent at the open, but have cooled some to hold gains around 9 percent at $2.71 per share about one hour into the trading session.

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Companies

Symbol Name Price Change % Volume
BX The Blackstone Group L.P. Representing Limited Par 26.31 -0.09 -0.34 756,605
KCG KCG Holdings Inc. Class A 14.23 -0.02 -0.14 24,670
BOFCE Borneo Industrial Fishery n/a n/a n/a 0
AMTD TD Ameritrade Holding Corporation 41.85 -0.11 -0.26 216,409
SF Stifel Financial Corporation 49.82 -0.40 -0.80 56,678

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