Knight Capital, the stock market-making firm that nearly collapsed last summer after a $440 million trading glitch, has reached an agreement to merge with Getco, the Chicago-based high-speed trading firm.
The $1.4 billion deal, which was announced on Wednesday, will give privately held Getco a public listing in a new holding company.
“The combination of Knight and Getco will create a powerful, dynamic firm with an unmatched ability to deliver results for clients,†Daniel Coleman, Getco's chief executive, said in a statement. “Market participants will benefit from industry-leading services, and our larger capital base will provide strong support for existing operations, as well as an attractive currency for growth.â€
Under the terms of the deal, shareholders of Knight other than Getco can receive $3.75 for every share or one share in the new holding company. Getco will get 233 million shares in the new company, and its 57 million shares of Knight will be retired.
Getco, a big Knight shareholder, was among the financial firms that swooped in with a $400 million rescue package for the firm, based Jersey City, in August, days after its trading loss.
The firm that led and assembled the lifeline, Jefferies Group, is heading up the financing for the merger, including refinancing all existing Knight and Getco debt. The private equity firm General Atlantic is making an additional $55 million equity investment.
Sandler O'Neill & Par tners and the law firm Wachtell, Lipton, Rosen & Katz advised Knight. Jefferies and the law firm Sullivan & Cromwell advised Getco. Bank of America Merrill Lynch provided a fairness opinion to the board of Getco.
