Knight Capital Up for Sale, May Merge With Rival

Knight Capital Up for Sale, May Merge With Rival
Jin Lee | Bloomberg | Getty Images

Four months after a massive trading-technology glitch that cost it nearly half a billion dollars, Knight Capital Group is on the block, say people involved with the discussions, and could be merged in to one of its chief competitors.

In recent weeks, Getco LLC and Virtu Financial have each approached Knight about the possibility of purchasing the company and merging into it, say these people—a transaction that would increase the resultant company's trading footprint considerably and enable the acquirer to go public without undertaking a traditional IPO.

Exact terms of a potential deal aren't yet clear, but Knight expects to see more detailed bids as early as this week, said one of the people familiar with the matter.

Based on Friday's share price, which preceded initial reports of a possible deal, and a premium of 30 percent to 40 percent, the value of a Knight purchase could range from $600 million to $700 million, say the two people familiar with the matter.

The deal negotiations were first reported by the Wall Street Journal.

Still, caution the people familiar with the matter, talks are at an early stage and no deal may come together at all.

Uncertainty has hung over Knight since an Aug. 1 trading-technology snafu that caused the company to take on a slew of unwanted positions in stocks, both purchases and short sales. Knight CEO Tom Joyce managed to sell off the erroneous purchases quickly, but was ultimately left with $460 million in losses.

In the aftermath of the glitch, the Securities and Exchange Commission opened an investigation into what went wrong, and Knight was forced to take on a new group of investors to raise emergency financing.

Whether Joyce would stay on as CEO and chairman of a restructured Knight is not yet clear. Joyce's current employment contract runs out at the end of the year, says one of the people familiar with the matter, and potential bidders have indicated that they'd like to keep him on.

But at least one of the bidders feels that a management transition would be in order as part of making a fresh start at Knight, says another person familiar with the matter.

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