Virtu's offer is lower, but it's all-cash. Getco's offer is favored because it already owns a big stake in the company, having bailed it out of its stupidity last summer.
Whoever gets the prize gets a bargain, which is why I'm surprised more bidders haven't emerged. Knight, knowing it's in play, is now looking for a white knight suitor like Blackrock (NYSE:BLK). It should also include TD Ameritrade (NYSE:AMTD), which has a big stake in KCG in the wake of losing $457 million on a software-driven trading error.
Getco wants to get this deal done and go fast, and says it has $950 in financing for it lined up. When someone is anxious to get a deal done now, it's a tell. They know they're getting a steal.
And they are. Knight's $400 million recapitalization after the error represented more than half its current valuation. The insiders -- Jefferies (JEF), Blackstone (BS), Getco, Stephens, Stifel Financial (NYSE:SF), and TD Ameritrade -- all got the chance to buy shares at $1.50/each. So the company has, in fact, already been taken over, most of the old small shareholders are wiped out, and the question becomes which of the partners is going to buy the others out. Reportedly, Knight had a better private equity deal from privately held Citadel on the table when it took a lower offer from the JEF-led group over the summer.
The real danger here is that Knight, a primary market maker for all publicly traded stocks, might go into a privately run firm. Or imagine what can happen when a company like Getco, which does high-frequency trading on its own account, gets control of the primary market maker and all its data -- what can that do for its algorithms, its results, and (more importantly) what will it do to market transparency?
My guess is that the publicly traded partners recognize this danger -- it's why their group was put together in the first place -- and that new bids will be coming. A publicly owned owner will be in a better position to grow the company than a privately owned one, which will be more interested in using Knight to boost its own results.
The conclusion is obvious. Buy KCG and enjoy the ride. Or just fetch some popcorn.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.