By Reuters
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 percent 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 U.S. Securities and Exchange Commission filing, implying the investors would get a stake of a little more than 70 percent in Knight.
The filing did not name the investors.
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.
"We don't expect investors to value Knight as an ongoing entity given its technology glitch generated a pre-tax loss equal to (about) 30 percent of shareholders equity and nearly wiped out the company in just 30-45 minutes of trading," he said.
Shares fell 33 percent to $2.70 in premarket trading from a $4.05 close on Friday. Less than three weeks ago Knight traded for more than $12 a share.
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