Published November 27, 2012
In a bid to keep his firm at least partially independent, Knight Capital (KCG) chief executive Tom Joyce today approached a number of Wall Street players in an attempt to merge with another player rather than be taken over by two companies that have expressed interest in buying the company, the FOX Business Network has learned.
Joyce also plans to have preliminary discussions about doing a deal with money management powerhouse BlackRock (BLK), according to a person with direct knowledge of the matter. It’s unclear how far the discussions with BlackRock might progress; one source with knowledge of the matter says chief executive Larry Fink has yet to be briefed on the matter.
A spokeswoman for BlackRock had no immediate comment.
“He doesn’t want to sell the firm, he wants to merge it,” said one person with direct knowledge of Joyce’s thinking. “He wants some control over Knight’s future and his own.”
Joyce’s contract with Knight ends at the end of the year, and it’s unclear if the board will be willing to extend it. The potential move also comes as Joyce weighs bids from two high-frequency trading firms that have expressed interest in acquiring Knight, particularly for its market making unit, which earned $51 million during the first six months of the year and is by far Knight’s most profitable business.
The firm nearly imploded earlier in the year when an errant trade cost it around $450 million; it was saved from bankruptcy following a cash infusion for a number of investors.
Those investors include the high-frequency trading firm Getco, which is one of the firms seeking to make a bid for Knight. The other likely bidder is Virtu Financial, another high frequency player.
Both Getco and Virtu declined comment; a spokeswoman for Knight didn’t return an email for comment.
But people close to Joyce say his preference is not to sell to either player, and if he’s forced to do a deal, he would like to merge Knight with another firm or have a larger company, like BlackRock, take over all of Knight’s various businesses. Both Getco and Virtu would likely sell off or close down its other operations.
BlackRock is one of the world’s largest money management firms, specializing in investing in bonds, though in recent years Fink has made an effort to diversify its business into equities. Knight, meanwhile, is considered the leading equity market maker for retail brokerages, matching buyers and sellers of stock through various stock exchanges.
Joyce also has a connection with Fink, who sold a chunk of BlackRock to Merrill Lynch in 2006 when Joyce was a senior executive at the Wall Street firm.
As first reported by FOX Business, Joyce spent much of Tuesday shopping Knight in hopes of a possible merger, or at the very least, boosting any takeover bid. Some analysts say the firm could fetch $1 billion or more.
Shares of Knight have spiked in recent days amid the takeover speculation, closing today at $2.97 a share. The major investors who bailed out Knight in August own 70% of the firm and provided the cash in exchange for $400 million in preferred stock that can convert into common stock at a price of $1.50 a share. Given where shares of Knight trade amid the takeover talk, many of those investors would like to walk away with their profits immediately and are thus pushing Joyce to do a deal.
But it’s unclear how much either Getco or Virtu would be willing to pay for Knight, and analysts say the firm’s nearly $3 share price makes a takeover valued at a little more than $1 billion.
Meanwhile, Joyce’s preference is for the firm to remain independent in some way, and he may argue to the board that without a merger partner, Knight could grow its business to produce more shareholder value by not selling out immediately.