Paying $20 per share, Virtu’s offer falls at the higher end of the range it proposed in an unsolicited offer last month. The deal would create an electronic trading giant that is responsible for nearly one-fifth of the volume in U.S. equities.
According to the company, the transaction will expand Virtu’s scaled operating model into KCG’s wholesale marketing business. It will also broaden the distribution of its technology and execution services to KCG’s institutional client base. Virtu hopes to integrate the combined company’s trading onto “a single, proven technology, risk management and analytics platform.”
Virtu CEO Douglas Cifu commented on the benefits of the deal in a statement.
"Virtu and KCG both have a heritage of using technology to make markets more efficient,” Cifu said. “The combination of talented, dedicated professionals from KCG and Virtu will allow us to achieve more together than either firm could achieve alone.”
The deal is also expected to create significant value for Virtu. Within two years of the deal closing, Virtu projects generating around $208 million of net pretax expense savings and $440 million in capital synergies.
Cifu will remain CEO of the combined company and Joseph Molluso, Virtu’s chief financial officer, will also remain in his post. Following the deal’s close, the board of directors will consist of 10 members, eight of whom currently serve on Virtu’s board. Robert Greifeld and Glenn Hutchins of North Island will join the board.
To fund the acquisition and debt refinancing, Virtu plans to borrow $1.65 billion and sell $750 million worth of common stock for $15.60 per share.
After the announcement, KCG shares soared 11% and Virtu shares jumped 7% in premarket trading.
With a market cap of $2.22 billion, Virtu was trading around $16.23 Thursday with a price-earnings (P/E) ratio of 19.4, a price-book (P/B) ratio of 15.2 and a price-sales (P/S) ratio of 0.9.
Among the gurus invested in Virtu, Ron Baron (Trades, Portfolio) is the largest shareholder with 0.4% of outstanding shares, which represents 0.05% of his total assets managed. Chuck Royce (Trades, Portfolio), Keeley Asset Management Corp (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jim Simons (Trades, Portfolio) also hold the stock.
With a market cap of $1.24 billion, KCG was trading around $19.73 on Thursday with a P/E ratio of 6.7, a P/B ratio of 0.9 and a P/S ratio of 1.3.
Simons is the only guru shareholder of KCG with 0.25% of outstanding shares.
Pending regulatory and shareholder approval, the deal is expected to close in the third quarter of 2017.
Disclosure: I do not own any stocks mentioned in the article.
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