- Last Updated: 12:52 AM, August 8, 2012
- Posted: 11:21 PM, August 6, 2012
There is no happy ending in the Knight’s tale.
Knight Capital — the embattled trading firm fighting for its survival after a $440 million computer glitch — was snatched from the brink of bankruptcy yesterday, thanks to a $400 million infusion from a group of investors.
But existing shareholders saw little reason to rejoice. The shares fell more than 24 percent to $3.07 after it became clear that they will see their ownership severely diluted as a result of the rescue plan.
The funding deal with a consortium of Wall Street players, including Jefferies Group, Blackstone Group, Stephens, Stifel Financial, Getco and TD Ameritrade, includes convertible securities that can be converted into stock at $1.50 per share.
While investors widely viewed the deal as a last-ditch effort for Knight to remain independent, the prospect of hundreds of millions of new shares flooding the market was a big negative.
CEO Tom Joyce, who spent a frantic weekend at his Jersey City, NJ, headquarters racing to keep his firm afloat and preserve the jobs of more than 1,400 employees, took to the airwaves to defend the deal.
“This was absolutely the right thing to do for this organization,” Joyce told Bloomberg TV in an interview. “We understand the dilution is a large amount, but for the future of Knight Capital Group, as tough as it was to see happen, it was the right thing to do.”
Joyce, known as T.J. to friends, is a well-respected market leader, but his fate as the head of the firm may come into question in the days and months ahead, Wall Street watchers said.
The firm’s near-collapse came after a bug in the firm’s software on Wednesday caused it to flood the market with erroneous orders on 150 different New York Stock Exchange-traded companies, including Berkshire Hathaway.
Knight is expected to release a filing with the Securities and Exchange Commission that provides more details on the deal.