Getco Holding Co. is looking to take over financial services company Knight Capital Group Inc. (NYSE: KCG) in a $539 million merger.
The proposal comes about a week after Getco said in a 13D filing with the U.S. Securities and Exchange Commission that it would evaluate its current investment in Knight, and possibly buy more shares.
Getco, an automated trading firm based in Chicago, so far owns a 23.8 percent stake in Knight Capital. In August, Getco was part of an investor group that rescued Knight after the company accidentally sent a flood of erroneous orders onto U.S. stock markets on Aug. 1. As a result, previous shareholders lost 70 percent of their stake in the company and Knight was hit with a $461.1 million loss. The mishap nearly bankrupted Knight had it not been for Getco and a consortium of investors, led by Jefferies & Co.
That was the first of two technical disruptions for Knight in recent months. The firm, one of the largest trading services for online brokers working with retail investors, also suffered a setback in October shortly after hurricane Sandy made landfall in New York on Oct. 29. The firm had to shut down trading in equities after backup power failed at its Jersey City, N.J. headquarters amid a blackout on Oct. 30.
After a string of difficulties, a deal with Getco may be the silver lining Knight was looking for. Getco chief executive Daniel Coleman said in a letter to Knight shareholders that he expects a merger to “unlock tremendous value for the shareholders of both firms” and hopes to finalize terms by Dec. 3.
Part of the deal would see Getco shareholders receive about 242 million newly issued shares of Knight and warrants to purchase Knight common stock. Getco would end up with 154 million shares of Knight, or the rough 50 percent of outstanding shares that it does not currently own.
Getco also said it has lined up $950 million in financing from a lender, allowing it to refinance its own debt, as well as Knight's outstanding debt.
Coleman would also take over as chief executive of the combined company. Knight chief executive Tom Joyce would be non-executive chairman of the board.