You know what’s a surprisingly not-great business? High frequency trading, for Getco anyway. A couple months back Getco signed a deal to acquire Knight Capital after one of Knight’s computers had an unfortunate couple of minutes. Yesterday Knight and Getco filed a joint S-4 containing a passel of merger details and Getco financials, and they’re sort of sad:

The sadness is really brought home by the fact that, if current trends hold, this year the average Getco employee will take home less than the average Goldman Sachs employee for the first time in modern memory. The Getco employees will still be a bit more productive, revenue-wise, though it’s getting closer: Read more »

I give you a tiny puzzle. Getco offered to buy Knight Capital a month ago for $3.50 a share, in the form of a cash-stock-election structure complicated by the fact that Getco is not (yet) a public company and so the value of your stock election is a bit of a mystery. Today the Knight board accepted Getco’s revised offer, which is similar but provides $3.75 per share, so I guess the mystery has been cleared up to its satisfaction; there will eventually be a merger proxy/prospectus so soon it will be cleared up to everyone’s satisfaction or possibly dissatisfaction.

The puzzle: if Getco is increasing the cash paid for Knight shares by 25 cents, or 7.1%, then it should also increase the value of the share election by 7.1%, to keep things in balance. And in fact it seems to have done so: while the original offer said that the tangible book value per share of newco would be $3.50, the revised one says: Read more »

  • 28 Nov 2012 at 1:28 PM

Knight Rides Again, Maybe

I’m a sucker for a little puzzle and I guess this Knight-Getco-Virtu thing qualifies, so let’s just bop around doing some silly arithmetic about it. Knight, the trading firm that slow-burn blew itself up this year, is looking for buyers, and Getco and Virtu seem to be those buyers. On the table we have:

  • An offer from Getco to buy half of Knight’s shares for $3.50 in cash and leave the other half outstanding in a new merged Knight-Getco, and
  • A rumor of an offer from Virtu to buy all of Knight’s shares for $3.00 in cash.

Virtu’s deal is worth $3.00, I guess. Getco’s deal is more complicated, but it’s got to be worth … at least $1.75, no? Plus whatever a (half of a) share in the new company is worth. What is that? Well it’s a proportionate amount of

  • Whatever Knight is worth, plus
  • Whatever Getco is worth, minus
  • The cash that is paid out to cash out half of the shares, all divided by
  • The number of shares in newco.

Plus synergies, etc., which are probably a thing. Rapacious prop traders + naive retail order flow = synergies!

Anyway you can start on the Getco deal’s value by mathing out tangible book value numbers. Read more »