Competitors Eye Knight Capital As Acquisition Target

After speculation as to what would happen to the company and its reverse mortgage business following a $440 million-plus trading glitch that sent the company reeling, reports this week indicate Knight Capital (NYSE: KCG), owner of Urban Financial Group may soon entertain offers for the sale of its market-making business. What such a sale would mean for the company’s reverse mortgage business remains to be seen.

Citing “people briefed on the discussions,” the Wall Street Journal reported Friday that Knight’s trading business was being pursued by two competitors in the market: electronic market makers Getco and Virtu Financial.

Knight rebounded as a result of a capital bailout from five companies in the market following the substantial loss, including Getco.

What a potential sale might mean for Knight’s reverse mortgage business is unknown, but the remaining business units could be up for sale as a result, the WSJ reports.

“Knight’s board of directors is expected to get separate proposals next week for the market-making business from high-speed trading firms Getco LLC and Virtu Financial LLC, these people said. Other potential buyers also could approach the board about that business and perhaps others.

One possibility is a breakup of the firm, with its various businesses sold to one or more buyers. Knight directors haven’t ruled out keeping the company independent and intact, the people said….

…If Knight pursues a deal with Getco or Virtu, its mortgage-origination business and Hotspot FX foreign-exchange trading platform could be eyed for separate sales, said people familiar with the talks.”

Knight does not comment on rumor and speculation, a company spokeswoman told RMD.

In the wake of the $460 million trading loss, Knight executives have cited Urban Financial Group and Hotspot FX as profitable business units that could possibly end up selling off. Analysts were mixed on the sale potential at the time.

Sale specifics could be known as early as this week, according to the report.

Urban has stated previously it remains committed to its reverse mortgage business in light of the August losses.

Written by Elizabeth Ecker

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