The shares of Knight Capital jumped 3.6 percent to $3.18 per share during the opening of trading on Tuesday after striking a $400 million rescue deal with a group of new investors, including the Jefferies Group (NYSE:JEF), Stifel Financial Corp. (NYSE:SF), Blackstone Group LP, Nicolaus and Company, Getco, and TD Ameritrade Holding Corp. (NYSE:AMTD).
On Thursday last week, the company’s stock value dropped 63% to $2.58 per share. The company lost $440 million due to technical glitches. Prior to the devastating incident, Knight Capital Group Inc. (NYSE:KCG) shares were trading more than $10 per share.
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The group of investors agreed to purchase Knight Capital Group Inc. (NYSE:KCG)’s 267 million preferred stocks. The investors would be able convert the preferred shares into common stocks at $1.50 per share, more than half of the current stock trading price per share. They will own 73 percent of the company’s equities.
Tom Joyce, CEO of the company, immediately sought emergency funding to keep the company’s business operations running last week, and conducted negotiations with potential investors to save the company from bankruptcy and restore its profitability.
Analysts were confident that the company would be able to find investors immediately because its business is interesting to banks and equity capital market firms.
In a statement, Joyce assured investors the company is “getting back to business as usual”, and expressed gratitude to its clients, employees, and partners for their steadfastness during the brief but difficult situation. He said, “Knight’s financial position and capital base have been restored to a level that more than offsets the loss incurred last week.”
According to Reuter’s report, given the current financial position of the company, some investors wonder about the actual worth of the company. Niamh Alexander, analyst from KBW suggested the valuation is currently 75 percent of the tangible book value. He said, “We use a higher discount to (book) than historically, to reflect the higher risk profile of the earnings after now two consecutive months of outsized trading losses, and as well as the liquidity and dilution and risk of shareholder lawsuits.”
Roger Freeman, analyst from Barclays Capital gave the same valuation for the Knight Capital Group Inc. (NYSE:KCG). On the other hand, analysts from JPMorgan Chase & Co. (NYSE:JPM) said investors would evaluate the company as the sum of its parts in anticipation of a possible breakup. Analysts cited its foreign exchange business platform, Hotspot FX and Urban Financial as the most attractive assets of Knight Capital Group Inc. (NYSE:KCG).
Yesterday, Joyce also said the firm would review its business units over the next few months, and decide if changes are necessary or remain as it is.