(September 14) – “Knight Trading Group Inc. has received expressions of interest from several potential buyers, including Citigroup Inc.’s Salomon Smith Barney unit and Morgan Stanley Dean Witter & Co., people familiar with the matter said, writes Grep Ip in today’s Wall Street Journal.
“But a formal offer for Knight, the Nasdaq market’s biggest market maker, isn’t yet close, these people said. And the expressions of interest, which are still preliminary, could result in a wide range of outcomes, including joint ventures between the companies.”
“Knight stock rose 23%, or $6.62, to $36.06 at 4 p.m. Wednesday after its chief executive officer, Kenneth Pasternak, canceled an appearance at a Merrill Lynch & Co. conference, sparking speculation that a deal was in the works. Such speculation proved correct earlier this week when J.P. Morgan & Co.’s CEO, Doug ‘Sandy’ Warner, canceled an appearance at the conference on Tuesday, a day before his firm announced its sale to Chase Manhattan Corp. Knight shares have climbed before on merger speculation, however.”
“Knight’s inquiries follow the Monday announcement that Goldman Sachs Group Inc. will pay $6.5 billion to buy Knight competitor Spear, Leeds & Kellogg LP and Merrill Lynch’s agreement to buy Herzog, Heine Geduld Inc. in June for $914 million.”
“A spokeswoman for Knight said, ‘The company policy is not to comment on rumors and speculation in the market.’ Spokesmen for Salomon and Morgan Stanley declined to comment.”
“The moves by Goldman and Merrill have put pressure on their big competitors to expand their own Nasdaq market-making capabilities. Knight, Spear Leeds and Herzog are ‘wholesalers,’ executing orders in thousands of stocks on behalf of other brokers.”
“The boom in technology stocks has made it critical for big brokerage firms to have a big presence in secondary Nasdaq trading, both to facilitate underwriting and to profit from the boom in trading by individual investors. With Spear Leeds and Herzog being sold, and Charles Schwab Corp. owning the second-largest market maker, Knight is the only major independent wholesaler left. Goldman approached Knight before buying Spear, according to people close to the situation, but Knight preferred to remain independent. Knight may now be more willing to accept a buyout.”
“Besides being Nasdaq’s biggest destination for orders from online brokers’ customers, Knight, formerly Knight/Trimark Group Inc., also has become a big options-market maker in the past year and is the largest trader of New York Stock Exchange-listed stocks on the Nasdaq InterMarket. It is also building a presence in stock trading in Japan and Europe. Those assets could prove enticing to a bulge bracket firm unwilling to build those market-making capabilities.”