Getco Outlines Merger with Knight in Board Letter

Electronic market-maker Getco has provided a solid outline of how a merger with Knight would operate in practice, in a formal bid submitted to the broker-dealer's board.

The proposed deal, unanimously approved by Getco's board, values Knight at around $1.4-8 billion, including debt. Under the merged company, Getco CEO Daniel Coleman would take over as CEO and a board member of the combined group, while Knight CEO Tom Joyce would become the non-executive chairman of the board. The board itself would be composed of four persons nominated by former Getco shareholders, and three persons currently serving on the Knight board.

Getco has secured $950 million of fully committed financing from what it describes as a "large financial institution" for deal security, which would cover share acquisition and merger completion as well as the refinancing of combined Getco/Knight debt.

"In addition to creating an industry leader in market-making and agency execution that is well positioned across multiple product lines globally, the work completed by our respective management teams to date indicates that there are large and achievable cost and revenue synergies attainable through a Merger," says Coleman, in the bid document. "The integration of our firms' operations would generate substantial earnings accretion going forward. Moreover, the larger capital base and higher regulatory capital of the combined company would provide strong support for existing customer operations as well as an attractive currency for potential future acquisitions."

Getco says that it expects an agreement could be formulated no later than today (December 3), and an exclusivity period should be in place after that.

Knight confirmed the receipt of the proposal, saying that as a matter of policy it did not comment on specific shareholder activities or interactions.