On Friday, as Knight Capital Group's board mulled buyout offers from two suitors, the trading firm took steps toward opening its books for due-diligence reviews that could begin any day, according to someone familiar with the matter.
Getco LLC and Virtu Financial LLC, the two companies interested in buying Knight, signed confidentiality agreements to keep the trading firm's internal books private as part of investments they made in the company in August, said two people familiar with the matter. Informal discussions about an outright purchase of Knight have been going on ever since, and a more official due-diligence process involving a more detailed examination could begin in the coming days, said one of these people, who has knowledge of the deal discussions. (Read More: Knight Capital Up for Sale, May Merge With Rival)
Getco, the Chicago-based trading firm, on Wednesday issued a letter to Knight's board, offering to purchase the company for $3.50 per share, valuing the company at well north of $1 billion, including debt. Getco's deal would involve merging its own business with Knight's, thus taking the Chicago firm public, and making its own chief executive, Daniel Coleman, the head of the combined companies (Knight chief Thomas Joyce would be non-executive chairman).
At the same time Virtu, the New York-based trading firm, also presented a bid to Knight that reportedly involves a $3 per share price, valuing the company at more than $1 billion, and a privatization plan that keeps Joyce in his current role. (Read More: Getco, Virtu Make Rival Bids for Knight Capital: Sources)
Knight, whose board met Thursday to discuss the two propositions, considers Virtu's offer to be "very much" in play, said one of the people familiar with the matter—although that person and another involved in the deal discussions acknowledged that Virtu hasn't yet secured all the needed financing. (Getco said in its letter that it had lined up $950 million in financing from a "large financial institution.")
Knight's directors will gather again on Monday afternoon for another briefing on the deal discussions, according to someone with knowledge of the plan.
A spokeswoman for Getco couldn't immediately be reached, and a Knight spokeswoman declined to comment on the details of the discussions. A Virtu official did not respond to requests for comment. (Read More: Hedge Funds Now Worse Than Mutual Funds)
-By CNBC's Kate Kelly