Knight Capital Group: Buyout Fight Winner

NEW YORK (TheStreet) -- Knight Capital Group (KCG) was the Wall Street winner on Wednesday, with shares rising 15% to close at $3.41.

Knight Capital Group, which is headquartered in New Jersey, received a takeout bid of $3.50 a share in cash and stock from competitor Getco Securities, which was 18% above Knight's closing price of $2.97 on Tuesday.

Knight Capital Group was rescued by a group of investors including Getco, Stifel Financial (SF), TD Ameritrade (AMTD) and Blackstone (BX), which collectively provided $400 million in capital after Knight in August announced a $440 million loss after a trading glitch caused the company to make what CEO Thomas Joyce called "a ton of orders, all erroneous," which the company had to unwind.

The Wall Street Journal reported Virtu Financial LLC has also made a bid for Knight Capital Group, so investors might be treated to a bidding war for the firm.

Following KBW analyst Niamh Alexander upgraded Knight Capital to a "Market Perform" rating from "Underperform," while raising her price target for the shares to $2.60 from $2.25, saying that "If Virtu and Getco are considering buying the market-maker unit, we think that this would fit strategically with what these privately owned trading firms are doing."

Alexander said that other potential bidders for Knight Capital Group's market making business include Citigroup (C) and UBS (UBS). The analyst's "sum of the parts analysis" of Knight indicates "a potential price ranging from $2.60 to $3.74," and that the "estimated valuation range or sale price range for the market making and institutional sales units could range from $1.71 to $2.49," while the "the electronic execution services units could fetch between $0.89 and $1.25 per share."

The analyst added that "our gut would be to focus more on the low end of these ranges, given not all of the corporate expenses may be eliminated."

The broad indexes strengthened late in the session to end with 1% gains on Wednesday, after President Obama spoke about the Fiscal Cliff at a White House event, saying he believed "that both parties can agree on a framework that does that in the coming weeks. In fact, my hope is to get this done before Christmas."

The KBW Bank Index (I:BKX) rose slightly to close at 48.50, with all but five index components seeing gains.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.