NEW YORK -- Nearly five months after a major software malfunction at Knight Capital roiled financial markets, the trading firm has agreed to sell itself to a competitor, Getco, in a cash-and-stock deal that the companies value at $1.4 billion.
Knight shareholders can choose $3.75 per share in cash or one share of stock in the new holding company. The per-share price -- which is more than the $3.50 per share that Getco offered last month -- is a 13 percent premium to Knight's Tuesday closing price. But it's a fraction of the company's worth before the meltdown.
Knight's stock rose 24 cents, or 7.2 percent, to $3.57 in premarket trading.
Knight Capital Group Inc. has one of the most advanced platforms for trading brokerages. The Jersey City, N.J., company takes stock trading orders from brokers like TD Ameritrade and E-Trade and routes them to the New York Stock Exchange and other exchanges.
Getco's acquisition is a path forward for Knight, which suffered $461.1 million in losses from the August malfunction that sent the shares of dozens of publicly traded companies haywire.
After the problem was traced back to Knight, its shares lost three-fourths of their value in two days, forcing it to cede control of its operations on the New York Stock Exchange and seek a lifeline.
Getco Holding Co. company became a major stakeholder after pitching in on a $400 million bailout of Knight this summer with a group led by financial firm Jefferies Group. Getco itself owns 57 million shares of Knight.
Under the buyout agreement, Getco will receive 233 million shares of the new holding company. Getco CEO Daniel Coleman will become CEO of the combined company. Knight Chairman and CEO Thomas Joyce will become executive chairman.
The combined company's board will have nine directors, including Coleman and Joyce. Getco will designate 4 additional board members, while Knight will name three additional directors.
Getco, based in Chicago, is owned mainly by its partners and executive team. Its only outside investor is General Atlantic, a private equity firm based in Greenwich, Conn.
The deal is expected to close in the second quarter of 2013.