Knight Capital Bidding War Begins

KBW analyst Niamh Alexander writes in a Wednesday note to clients that Knight Capital may be burdened by too much uncertainty to warrant a premium takeover bid, but that the firm also has the ability to survive on its own.

" KCG did the dilutive convertible issue in order to be able to continue to operate independently and we think it absolutely could continue to operate and recover standalone over time," writes Alexander, who gives the firm's shares a $2.60 price target.

While it's debatable whether Knight Capital's chief executive Tom Joyce can be celebrated for the company's survival, his decision to expediently raise capital at any cost may be taken as a cue for other financial institutions up against the Wall Street eight ball.

In the past, Wall Street CEO's have played a dangerous game of trying to get a good rescue price over raising capital, with disastrous consequence.

No doubt, Joyce will likely still face a flurry of shareholder lawsuits for the $440 debacle and there's no guarantee that Knight will be acquired at $3.50 a share or any price that's palatable to longtime investors. Still, for now, the company's current share price over $3 appears to be a vote of confidence by the market.

Knight's dilutive rescue should be taken as a wakeup call to financial sector investors, who now have a painful example of how new equity is the first line of defense for a firm in crisis. Takeover negotiations can always follow.

For more on Wall Street takeovers, see why a buyer came to the rescue of Jefferies after it rescued Knight Capital.

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-- Written by Antoine Gara in New York

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