LONDON, UK / ACCESSWIRE / April 21, 2017 / Active Wall St. blog coverage looks at the headline from Virtu Financial, Inc. (NASDAQ: VIRT) and KCG Holdings, Inc. (NYSE: KCG). Virtu Financial announced on April 20, 2017, that it has signed an agreement to acquire KCG Holdings. The deal came through after Virtu had made an unsolicited offer to KCG on March 15, 2017. The deal will transform Virtu into one of the biggest players in the financial trading sector. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.
Sharing his views on the acquisition, Douglas A. Cifu, CEO of Virtu said:
“KCG fits perfectly with Virtu’s strategic priorities to apply our market making and technological expertise to customer wholesale order flow and expand Virtu’s growing agency execution business by offering clients a combination of Virtu and KCG’s superior algorithms and proprietary analytical tools.”
Charles Haldeman, Non-Executive Chairman of the Board of Directors, KCG added:
“After a thorough evaluation, KCG’s Board of Directors concluded that the proposal from Virtu provides compelling value for KCG’s stockholders. Further, the combination of Virtu and KCG will create a true industry leader with greater diversification and scale.”
Details of the deal
Virtu has agreed to pay $20 in cash for each of KCG’s share taking the transaction value of the deal to approximately $1.4 billion. The offer price is at a premium of 46% to KCG’s share price of $13.73 on March 14, 2017, a day before Virtu made an unsolicited offer for KCG. The Boards of Directors of both companies have approved the deal. The transaction is expected to close in Q3 2017 and is subject to receiving approval from KCG’s shareholders and fulfillment of regulatory conditions. Jefferies LLC, who is a majority stakeholder in KCG with 24.5% stake, has signed a voting agreement in favour of the deal.
Virtu plans to finance the deal by selling a portion of its common stock and debt financing. Virtu plans to raise $750 million by selling off its common stock at $15.60 per share.
Robert Greifeld and Glenn Hutchins, Principals of North Island along with Singapore’s sovereign wealth fund GIC and Canada’s largest pension investment managers – Public Sector Pension Investment Board (PSP Investments) will acquire stock worth approximately $650 million. The remaining $125 million will be through stock sale to Temasek, which is already an existing investor in Virtu. These deals are contingent on the closing of the Virtu-KCG deal.
Virtu has secured financial commitment from J.P. Morgan Securities LLC for up to $1.65 billion as debt to close the deal.
Once the transaction is through, Virtu plans to continue using its name and identity for the merged Company.
Post the merger Douglas A. Cifu the current CEO of Virtu, will continue as CEO and Joseph A. Molluso current CFO of Virtu will continue as CFO of the new merged entity. The Board of Directors of the new merged entity will have total 10 members, out of which 8 are existing members of Virtu’s Board and North Island’s Robert Greifeld and Glenn Hutchins will join as two members.
Post the merger, Virtu plans to migrate trading of the combined Company onto a single platform. Virtu is confident of maintaining its annual dividend of $0.96 per share in the future, even after the transaction is completed.
Benefits for Virtu
The merger creates a global electronics trading Company on a single platform. Virtu expects the acquisition to boost its earnings by nearly 25%, as the deal will provide additional sources of order flow for market making and will offer economies of scale and scope in infrastructure spending. Virtu expects to save approximately $208 million in net pre-tax cost savings and an additional $400 million in savings from capital synergies within two years of the merger.
The deal opens up a new revenue source for Virtu. Virtu gains access to KCG’s institutional client base. The greater scale and cost efficiencies would equip Virtu to deal with changing market cycles and volatility and competition effectively.
Earnings Results for Q1 2017
Virtu plans to disclose its full results for Q1 2017 on May 04, 2017. In the meanwhile, it has shared some of the key figures that can be expected from the Company for the said period. Q1 total revenues are expected to be around $147.3 million and a GAAP net income to be around $21.3 million.
KCG also announced its earnings for Q1 2017 and reported a net income of $3.21 million which was nearly 91% fall from the net income of $37.17 million in Q1 2016.
A Changing Landscape
High speed electronic traders are struggling to survive in a low income and low volatility in the markets. Falling profits and high cost of technology and investments in data feeds are adding to the burden. In such a scenario consolidation seems the most viable option.
At the close of trading session on Thursday, April 20, 2017, Virtu Financial’s stock price surged 10.03% to end the day at $16.45. A total volume of 3.00 million shares were exchanged during the session, which was above the 3-month average volume of 582.33 thousand shares. The Company’s shares are trading at a PE ratio of 19.24 and have a dividend yield of 5.84%. The stock currently has a market cap of $2.29 billion.
On Thursday, KCG Holdings’ stock closed the trading session at $19.75, surging 11.33% from its previous closing price of $17.74. A total volume of 24.47 million shares have exchanged hands, which was higher than the 3-month average volume of 709.38 thousand shares. The Company’s stock price surged 44.37% in the last three months, 29.00% in the past six months, and 57.00% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have gained 49.06%. The stock is trading at a PE ratio of 6.29. At Thursday’s closing price, the stock’s net capitalization stands at $1.24 billion.
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