|KCG ANNOUNCES FIRST QUARTER 2017 RESULTS|
KCG ACCEPTS PROPOSAL FROM VIRTU FINANCIAL, INC. TO ACQUIRE
KCG announces consolidated earnings of $0.05
NEW YORK, New York - April 20, 2017 - KCG Holdings, Inc. (NYSE: KCG) today announced that it has reached a definitive agreement for Virtu Financial, Inc. (NASDAQ: VIRT) to acquire all outstanding shares of KCG's Class A Common Stock for $20.00 per share in cash. The price represents a premium of 46 percent over KCG's closing share price of $13.73 on March 14, 2017, prior to news reports of the proposal.
Charles Haldeman, Non-Executive Chairman of the Board of Directors, said "After a thorough evaluation, KCG's Board of Directors concluded that the proposal from Virtu provides compelling value for KCG's stockholders. Further, the combination of Virtu and KCG will create a true industry leader with greater diversification and scale."
Goldman, Sachs & Co. is serving as the financial advisor and Sullivan & Cromwell LLP is providing legal advice to KCG.
Additionally, KCG reported consolidated earnings of $3.2 million, or $0.05 per diluted share, for the first quarter of 2017. Consolidated earnings includes an income tax benefit of approximately $3.5 million associated with stock-based compensation awards. Included in the first quarter pre-tax loss of $0.4 million is a pre-tax gain of $4.8 million from the sale of all remaining shares of Bats Global Markets, Inc. ("Bats") owned by KCG.
First Quarter Highlights
Daniel Coleman, Chief Executive Officer of KCG, said, "The first quarter of 2017 was marked by historic low market volatility. Realized intraday volatility for the S&P 500 posted the lowest quarterly average in 55 years while U.S. equity market volumes and bid-ask spreads contracted from a year ago. Despite all of this, retail investors provided a pocket of strength in the U.S. equity and bond markets."
In the first quarter of 2017, the U.S. equity market remained uncharacteristically calm. For the quarter, realized intraday volatility for the S&P 500 averaged 5.7 basis points, average daily consolidated U.S. equity dollar volume declined 11.7 percent year over year and the average weighted spread for Russell 3000 stocks tightened more than one full basis point from a year ago. Retail investors were the exception to the broader market. For the quarter, average daily gross SEC Rule 605 U.S. equity dollar volume rose 12.0 percent year over year, retail investors committed an estimated $59.5 billion in net inflows to U.S. equities and average daily over-the-counter (OTC) trades rose 54.4 percent from a year ago.
Mr. Coleman commented, "KCG market share gains among retail brokers helped offset the poor overall market conditions. For the quarter, KCG's revenue capture per U.S. equity dollar value traded returned to more normal levels, despite the pressures from market volatility, volumes and spreads."
In the fourth quarter of 2016, the segment generated total revenues of $168.3 million and a pre-tax loss of $8.5 million.
In the first quarter of 2016, the segment generated total revenues of $258.9 million and pre-tax income of $75.5 million. Included in first quarter revenues was a $2.9 million gain from the sale of assets related to retail U.S. options market making.
Select Trade Statistics: U.S. Equity Market Making
Global Execution Services
In the first quarter of 2017, the uncertain macroeconomic outlook muted institutional trading activity. The decline in consolidated U.S. equity share volume year over year included a decrease in U.S. ETF share volume of 20.7 percent and drop in aggregate dark pool U.S. equity share volume of approximately 25.5 percent. As in equities, retail investors were active in bonds. Average daily corporate and municipal bond transactions under 250 bonds rose 17.6 percent and 14.9 percent, respectively, year over year.
Mr. Coleman commented, "Institutional investors were measured given the array of concerns in the markets. Meanwhile, retail investors drove the record quarter for KCG BondPoint as volumes of corporate and municipals bonds in retail-size lots continued to build."
In the fourth quarter of 2016, the segment generated total revenues of $75.5 million and pre-tax income of $4.5 million.
In the first quarter of 2016, the segment generated total revenues of $76.4 million and pre-tax income of $6.3 million.
Select Trade Statistics: Agency Execution and Trading Venues
Corporate and Other
In the fourth quarter of 2016, the segment generated total revenues of $336.7 million and pre-tax income of $313.9 million. Included in fourth quarter revenues are pre-tax gains totaling $331.0 million from the sale of Bats shares.
In the first quarter of 2016, the segment generated total revenues of $10.1 million and a pre-tax loss of $21.8 million. Included in first quarter revenues are a $3.7 million gain from KCG's repurchase of a portion of its 6.875 percent Senior Secured Notes and a $2.8 million net gain primarily related to a distribution from an investment.
During the first quarter of 2017, KCG repurchased 0.9 million shares for approximately $13.3 million under the Company's stock repurchase program.
KCG's headcount was 923 full-time employees at March 31, 2017, compared to 952 at December 31, 2016.
Due to the announced merger with Virtu Financial, LLC, KCG will not host a conference call on the first quarter of 2017.
Additional Information and Where to Find It
Participants in Solicitation
Certain statements contained herein constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "target," "estimate," "continue," "positions," "prospects," or "potential," by future conditional verbs such as "will," "would," "should," "could" or "may," or by variations of such words or similar expressions. These "forward looking statements" are not historical facts and are based on current expectations, estimates and projections about KCG's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the inability to manage trading strategy performance and grow revenue and earnings; (ii) the receipt of additional payments from the sale of KCG Hotspot that are subject to certain contingencies; (iii) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by Congress, federal and state regulators, self-regulatory organizations and the media on market structure issues, and in particular, the scrutiny of high frequency trading, best execution, internalization, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (iv) past or future changes to KCG's organizational structure and management; (v) KCG's ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG's customers and potential customers; (vi) KCG's ability to keep up with technological changes; (vii) KCG's ability to effectively identify and manage market risk, operational and technology risk, cybersecurity risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (viii) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; (ix) the effects of increased competition and KCG's ability to maintain and expand market share; (x) the migration of KCG's Jersey City, NJ data center operations to other commercial data centers and colocations; (xi) the completion of the Merger in a timely manner or at all; (xii) obtaining required governmental approvals of the Merger on the terms expected or on the anticipated schedule; (xiii) KCG's stockholders failing to approve the Merger; (xiv) the parties to the Merger Agreement failing to satisfy other conditions to the completion of the Merger, or failing to meet expectations regarding the timing and completion of the Merger; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement; (xv) the effect of the announcement or pendency of the Merger on KCG s business relationships, operating results, and business generally; (xvI) risks that the proposed Merger disrupts current operations of KCG and potential difficulties in KCG employee retention as a result of the Merger; risks related to diverting management's attention from KCG s ongoing business operations; (xvii) the outcome of any legal proceedings that may be instituted against KCG related to the Merger Agreement or the Merger; and (xvIii) the amount of the costs, fees, expenses and other charges related to the Merger. The list above is not exhaustive. Because forward looking statements involve risks and uncertainties, the actual results and performance of KCG may materially differ from the results expressed or implied by such statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, KCG also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties disclosed in KCG's reports with the SEC, including those detailed in "Risk Factors" in Part I, Item 1A and elsewhere in the Annual Report on Form 10-K for the year ended December 31, 2016, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time.