Chicago-based market maker and high-frequency trader Getco Holding Co. LLC sweetened its bid for distressed market maker Knight Capital Group Inc. (NYSE: KCG) today (Wednesday), winning a takeover battle with rival Virtu Financial Holdings LLC.
According to CNNMoney, Getco will pay to third-party shareholders either $3.75 per share in cash or one share of common stock in a new holding company that will be the actual acquirer of Knight. (Getco already owns a 23.8% stake in Knight).
Cash payments to large, institutional shareholders, such as Jefferies, which is handling the financing of the $1.4 billion deal, will be restricted.
In return, according to The New York Times, Getco will receive 233 million shares in the new holding company and 57 million Knight shares will be retired.
Getco is the second-largest designated market maker on the New York Stock Exchange, transacting about 20% of the average daily volume traded. Knight Capital is the third-largest designated market maker, accounting for about 10% of average daily volume.
By acquiring Knight Capital Group, Getco will still be the second-largest designated market maker, but with 30% of average daily volume going through the door, it'll be more on a par with No. 1 market maker Barclays PLC (NYSE: BCS).
That means Getco now has an unfair advantage in the markets. Here's why.