Shares of KCG Holdings (NYSE:KCG) are up just over 11% as of 10:30 a.m. EDT Thursday, after the company announced it had reached an agreement to be acquired by Virtu Financial, Inc. (NASDAQ:VIRT) for $20 per share.
Virtu made a failed bid at KCG Holdings' predecessor in 2012, when Knight Capital Group lost $440 million from a computer glitch. Last month, Virtu made an unsolicited offer to purchase KCG Holdings for $18.50 to $20 per share.
The deal will combine two leading market markers in financial markets around the world. KCG Holdings generates the bulk of its revenue as a market maker in U.S. stocks, whereas Virtu generates the bulk of its revenue in global fixed income, currency, and commodities markets, and non-U.S. stocks.
In a presentation to investors, Virtu Financial explained that the combined company could eliminate $250 million in annual expenses, slightly offset by a $42 million decrease in revenue, for net cost savings of $208 million annually.
In 2019, the company forecast a "base case" in which its acquisition of KCG Holdings would add approximately $147 million to after-tax earnings. Additional cost savings of $10 million to $15 million could be realized from exchange and prime broker fee synergies, according to Virtu's presentation.
Virtu Financial anticipates the acquisition will close in the third quarter of 2017, following KCG stockholder approval and regulatory clearance. At a recent price of $19.74 per KCG Holdings share, Wall Street is valuing the company at a 1.3% discount to the announced acquisition price, a small discount that reflects little perceived risk that the deal falls through.
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