Knight Capital (KCG) Reaches $400 Million Deal to Save Firm
Published: Sunday, 5 Aug 2012 | 8:31 PM ET
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By: David Faber, Kate Kelly, Kayla Tausche
A teetering Knight Capital Group looks close to being salvaged with an infusion of $400 million in capital, say people familiar with the matter, in the form of a convertible preferred security that gives the buyers the right to buy Knight shares at $1.50.
The convertible securities – essentially bonds that turn into equity stakes at a future point – are expected to be sold to a consortium of buyers that include the investment bank Jefferies & Co., the private-equity firms General Atlantic and Blackstone Group [BX 13.90 0.20 (+1.46%) ], and the brokerages TD Ameritrade [AMTD 16.07 0.70 (+4.55%) ], Stephens Inc., and Stifel Nicolaus, says one of the people familiar with the matter.
The securities have a conversion price of $1.50 and will massively dilute the trading firm, but allow it to replenish its coffers and open for business on Monday, say the people familiar with the matter.
A spokeswoman for Knight [KCG 4.05 1.47 (+56.98%) ] declined to comment. The people familiar with the talks caution that final details were still being buttoned down, however, and that no deal will be announced until regulators approved of the deal.
The buyers of the converts will together own roughly 70 percent of the Jersey City, NJ trading firm, which upon conversion of the preferred, will see its share count rise from a hundred million shares to roughly 350 million shares. The coupon on the preferred is 2 percent, but all the firms are expected to convert after 10 business days, says one of the people familiar with the matter.
Jefferies led the offering and has been engaged with Knight since a software glitch on Wednesday caused it to buy unwanted positions in about 148 stocks, eventually prompting a roughly $440 million loss.
Late that day, Goldman Sachs [GS 100.98 3.17 (+3.24%) ] agreed to purchase the unwanted stock positions from Knight as part of a big basket, people familiar with the matter have said, at a discount for their original purchase price.
—CNBC’s Kayla Tausche and John Melloy contributed to this report.
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