Following rumors after the close of US trading yesterday, Knight Capital Group has announced today that it has agreed to merge with GETCO Holding Company in a deal that values Knight at $1.4 billion. According to the deal, Knight shareholders will receive one share of the combined group or $3.75 per share. The combined unit will be publically traded.
For Knight shareholders, the merger allows them to see continued appreciation if the value of the combined businesses increases. The component of a further asset appreciation was viewed as critical to existing shareholders and the reason GETCO’s bid had trumped one from rival Virtu LLC. The $3.75 cash value represents a 51% increase from November 23rd and is 15% above Knight’s tangible book value that was reported on September 30th. In pre-market trading, shares of Knight Capital (KCG) are trading at $3.54.
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The combined GETCO and Knight will become a powerhouse for US equity market making. The focus though on equities has put Knight’s other businesses in question and increased the likelihood that its Hotspot FX and BondPoint trading units will be sold. For Hotspot FX specifically, since the start of bidding for Knight began in November, the unit has been rumored to be on the block. Rumored buyers include Nasdaq OMX which could be seeing the potential in Hotspot FX as a means to quickly expand its assets offering. In a note to clients, Niamh Alexander, Analyst at Keefe, Bruyette, & Woods stated wrote “Given some of the $720 million of cash payout will be funded with borrowed cash, we would anticipate some of the electronic businesses might be sold to help pay down debt used to finance the deal, such as Hotspot or Bondpoint and Astor Asset Management, potentially KCG’s stake in Direct Edge, but we don’t know management’s plans yet.”
Forex Magnates reached out to Knight for more information on the future of Hotspot FX and will provide an update as soon as we receive more information.