Virtu Closes KCG Deal
It’s the end of an era.
That’s the view of Richard Repetto, Principal at Sandler O’Neill + Partners, L.P., who noted that in the wake of KCG shareholders already voting to approve the firm’s sale to Virtu Financial, the transaction was expected to close Thursday without incident.
“KCG was originally founded in 1995 by a consortium of broker dealers, many of them the online brokers, to provide efficient trade execution,” Repetto said. “With the growth of retail online trading, KCG has been a leader in wholesale market making for the past two decades. As KCG merges with Virtu, the combined company will be one the largest providers of liquidity in the globe across asset classes.”
In an 8-K filed Wednesday, KCG announced that shareholders had approved the sale to Virtu for $20 in cash per share. KCG also indicated that “all Required Governmental Approvals” as defined by the merger agreement had been obtained. KCG expects the closing of the transaction “to be completed on or about July 20, 2017 (today), subject to the customary closing conditions.”
With the closing, Virtu Financial is getting a new Chairman – and that Chairman is Robert Greifeld. Traders Magazine previously reported that the former CEO of exchange operator Nasdaq was announced to assume command at Virtu once the $1.4 billion acquisition was completed, according to a regulatory filing dated May 31.
Greifeld, along with Silver Lake co-founder Glenn Hutchins, joined forces with Singapore’s GIC and Temasek and Canada’s Public Sector Pension Investment Board to buy a combined $750 million of new Virtu stock as part of the firm’s deal to buy KCG. Hutchins will also join Virtu’s board.
Greifeld left the U.S.’ number two exchange this past January after spending 14 years there. Under his direction, Nasdaq became a more diversified business, moving away from a pure trading cash revenue stream to electronic market data and technology business.
Relatedly, as first reported on Reuters, Greg Tusar confirmed that he left KCG Holdings Inc upon the closing of the firm’s $1.4 billion takeover by rival Virtu Financial Inc on Thursday. He was head of electronic execution and platforms at KCG, responsible for sales, products and platforms globally. He joined KCG in 2013 after 13 years at Goldman Sachs, where he was partner and head of electronic equities trading.
So, what can the market expect of this union?
“Cost synergies are well on their way,” Repetto said. “The merger is expected to produce cost savings of $250 million over 2 years while revenue dis-synergies should amount to $42 million. On May 18th, KCG announced that progress had begun under its internal management plan to exit its Asian operations & foreign exchange market making business, which should reduce headcount by 12%. KCG anticipated $18-$20 million in charges related to these actions with the majority recognized in 2Q17.”
However, despite the expected savings, there will be some short-term pain, Repetto added, saying he is expecting an $0.08 loss for KCG in 2Q17 due to low volatility.
“We expect KCG’s revenue capture to decline to 0.87 bps, down from 0.94 bps in 1Q17 and 1.07 bps in 2Q16, Repetto said. “Bottom line, market conditions remained unfavorable for market makers in 2Q17.”
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