Knight board considers buyout offers - sources

Mon Dec 17, 2012 7:17pm EST

* Knight held board meeting on Monday to examine bids

* Suitors Getco and Virtu have made presentations to Knight

NEW YORK Dec 17 (Reuters) - Electronic trading firm Knight Capital Group is considering two competing acquisition offers following a board meeting on Monday that included presentations from suitors Getco Holding LLC and Virtu Financial LLC, sources familiar with the talks said.

Getco recently increased the amount of upfront cash to its cash and stock offer, valuing it near $1.8 billion, while Virtu's all-cash bid of $3.20 a share amounts to around $1.6 billion, according to the Wall Street Journal.

A spokeswoman for Knight and a spokesman for Virtu had no comment. A spokeswoman for Getco was not immediately available.

Virtu has lined up financing for its bid from private equity firm Silver Lake, a Virtu investor, along with Barclays, RBC Capital Markets, and others, sources with knowledge of the talks told Reuters. Private equity firm Cerberus was also considering backing the bid, according to reports.

Knight was made vulnerable to a takeover this summer when a trading glitch left it nearly bankrupt before a group of investors stepped in with $400 million in emergency capital.

The U.S. Securities and Exchange Commission is conducting an investigation into the glitch.

Knight's U.S. market-making business, which uses computer models to match buy and sell orders in stocks and options and executes around 10 percent of U.S. equity trading volume, had remained profitable, despite a market-wide trading slump.

Aside from being a major market maker, matching equity orders from buyers and sellers and providing liquidity, Knight runs bond and foreign exchange trading platforms and owns a reverse mortgage lender. It also holds a stake of about 20 percent in Direct Edge, the No. 4 U.S. cash equities exchange.

Both Getco and Virtu are mainly interested in Knight's market-making business, and would sell off other assets, people familiar with the firms' plans have said.

Getco, in its original offer filed with regulators, said Knight would remain a public company under its plan. Virtu, however, would take the company private, a person close to Virtu said.

On Aug. 1, Knight went live with new software that had been improperly installed. The software conflicted with old code that was to have been deleted, unleashing a flood of orders to the New York Stock Exchange, and leaving Knight with a massive position it had to unload at a loss totaling $461.1 million.

Days later, with Knight's future in question, several companies - Blackstone Group LP, Getco and financial services companies TD Ameritrade Holding Corp, Stifel Nicolas, Jefferies Group Inc and Stephens Inc - stepped in with a $400 million investment to keep it afloat.

As part of the deal, Getco investor General Atlantic, as well as Blackstone and TD Ameritrade, were given seats on Knight's board.

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