Virtu

  • 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 »