Leverages Virtu’s global scale, efficiency and market structure expertise with KCG’s strong client franchises in market making and independent agency execution
Over 25% accretion to Virtu earnings per share with fully-phased cost savings and capital synergies
NEW YORK, April 20, 2017 (GLOBE NEWSWIRE) — Virtu Financial, Inc. (NASDAQ:VIRT) today announced that it has entered into a definitive agreement to acquire KCG Holdings, Inc. (NYSE:KCG), which has been unanimously approved by the Board of Directors of each company. Virtu has agreed to acquire KCG in a cash transaction valued at $20.00 per KCG share, or a total of approximately $1.4 billion.
The transaction will extend Virtu’s scaled operating model to KCG’s wholesale market making businesses and broaden the distribution of Virtu’s technology and execution services to KCG’s extensive institutional client base. Virtu expects to migrate trading of the combined company onto a single, proven technology, risk management, and analytics platform.
“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. In addition, there is immediate opportunity for revenue growth and significant cost savings,” said Douglas A. Cifu, Virtu’s Chief Executive Officer.
Mr. Cifu continued, “Virtu and KCG both have a heritage of using technology to make markets more efficient. The combination of talented, dedicated professionals from KCG and Virtu will allow us to achieve more together than either firm could achieve alone.”
The transaction is expected to close during the 3rd quarter in 2017 after receipt of KCG shareholder approval and all required regulatory approvals.
Significant Value Creation through Synergies
The transaction is expected to provide significant further scale and financial benefits to Virtu. Within two years of the completion of the transaction, Virtu expects to realize approximately $208 million of net pre-tax expense savings, in addition to $440 million of capital synergies. These savings do not include any revenue enhancements that Virtu anticipates to result from the transaction.
Transaction Terms, Approvals and Timing
Virtu intends to fund the cash transaction and debt refinancing with new gross borrowings of $1.65 billion and the sale of $750 million of common stock, priced at $15.60 per share.
North Island, whose principals are Robert Greifeld and Glenn Hutchins, will invest $625 million in Virtu common stock, in partnership with GIC, Singapore’s sovereign wealth fund, and Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers. Temasek, an existing Virtu shareholder, has committed to invest an additional $125 million in Virtu common stock. The sale of shares is conditioned upon the closing of the transaction.
Virtu has also entered into a commitment with J.P. Morgan Securities LLC, to provide up to $1.65 billion of debt financing for the transaction.
Virtu intends to maintain its annual dividend of $0.96 per share after the close of the transaction.
The transaction is subject to customary closing conditions, including the approval of the stockholders of KCG, and receipt of required regulatory clearances and approvals. Jefferies LLC, the largest shareholder of KCG, has entered into a voting agreement pursuant to which it has committed to vote the 24.5% of KCG’s outstanding voting power it holds for the adoption of the merger agreement.
Organization and Leadership
Following the close of the transaction, Douglas A. Cifu, Virtu CEO, will remain CEO of the combined company. Joseph A. Molluso, Virtu CFO, will remain the CFO of the combined company.
Following the close of the transaction, the Board of Directors will consist of 10 directors, including 8 of the 10 members currently serving on the Virtu board. In addition, 2 new members from North Island, Robert Greifeld and Glenn Hutchins, will join Virtu’s Board of Directors. These changes will be effective immediately upon closing.
Virtu First Quarter 2017 Flash Results
Virtu plans to announce its full Q1 2017 results on May 4, 2017. The following tables present the selected financial information Virtu expects to announce:
|Trading income, net||$||139.6|
|Interest and dividends income||4.9|
|Technology Products and Services||2.8|
|Other revenues (losses)||0.1|
|Total Operating Expenses||123.5|
|Income before Income Taxes||23.8|
|Adjusted Net Trading Income||$||79.4|
|Pro-forma Adjusted Net Income||$||21.9|
|Pro-forma shares outstanding (millions)||140.9|
|Net Income Margin||25.2||%|
|Pro-forma Adjusted Net Income Margin||26.7||%|
|Adjusted EBITDA Margin||57.8||%|
|Reconciliation of Trading income, net to Adjusted Net Trading Income|
|Trading income, net||$||139.6|
|Interest and dividends income|