Virtu, Getco Start Examining Knight Trading’s Books

Getco LLC and Virtu Financial LLC on Friday started formal due diligence on Knight Capital Group Inc. after this week submitting rival takeover offers for the U.S. brokerage, people involved in the discussions said.

Knight’s directors will continue to review the dueling offers which value the company as high as $1.8 billion, though no firm decision is expected for at least a week, the people said. Knight declined comment.

The Knight board met at the trading firm’s Jersey City., N.J. headquarters on Thursday to review competing proposals from the two closely-held, high-frequency trading specialists. Virtu’s all-cash proposal would take Knight private, while Getco’s cash-and-stock offer would combine the two firms in a new, publicly-traded entity.

Formal due diligence typically involves a close inspection of a firm’s financials, as well as discussions with key staff and major customers.

“From a diligence perspective, [the bidders] are probably first focused on testing the key value drivers of the business, which in the trading business is going to be focused on revenue, margin, accounting and key producers,” said Jason Frankl, senior managing director with FTI Consulting.