A group of investors will rescue embattled market maker Knight Capital Group Inc in a $400 million deal that keeps the company in business, Knight said on Monday, but comes at a huge cost to investors.
The firms will buy 2% convertible preferred stock to save Knight, which was brought to its knees last week by a software glitch that caused errant trading in dozens of stocks. The deal is expected to close later Monday morning.
The preferred shares are convertible into about 267 million shares of common stock, Knight said in a US Securities and Exchange Commission filing, implying the investors would get a stake of a little more than 70% in the company.
The filing did not name the investors. On Sunday, sources identified private equity firm Blackstone Group LP, Chicago market maker Getco and financial services companies TD Ameritrade Holding Corp , Stifel Nicolas, Jefferies Group Inc and Stephens Inc as potential buyers.
J.P. Morgan analyst Kenneth Worthington, in a client note after the initial reports on the rescue Sunday night, said the deal presaged Knight’s eventual breakup.
Shares fell 30% to $2.85 in premarket trading after closing at $4.05 on Friday.