KCG Shareholder Says $1.3B Virtu Deal Violates Del Law

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By Michael Greene

A KCG Holdings Inc. stockholder is claiming the company’s proposed $1.3 billion merger with rival high frequency trading firm Virtu Financial Inc. violates Delaware’s prohibition against deals with interested stockholders ( Greenway v. KCG Holdings Inc. , Del. Ch., No. 2017-0412, complaint filed 6/2/17 ).

KCG’s largest shareholder, Jefferies LLC, had “an agreement, arrangement or understanding” to sell its shares to Virtu, Herbert Greenway alleged in a June 2 would be class action filed in the Delaware Chancery Court. As a result, Greenway alleged, Virtu became the “owner” of Jefferies’ 24.5 percent equity stake in KCG, which in turn made Virtu an “interested stockholder.”

Delaware law prohibits publicly traded companies from engaging in a “business combination” with an “interested stockholder” who owns 15 percent or or more of a corporation’s voting stock during the previous three years.

Greenway is seeking a court order to block a KCG stockholder vote on whether to approved the deal, which the companies announced April 20. Virtu said it would acquire KCG for $20 per share in a transaction that is expected to close during the third quarter.A KCG representative didn’t immediately respond to a request for comment.

Inadequate Consideration

Greenway in his lawsuit also said that KCG shareholders are receiving inadequate consideration in the deal.

Specifically, he claims “the first half of 2017 was an inopportune time to sell” KCG because low market volatility exerted downward pressure on its performance. “Postponing the sales process at least until market conditions improved would have likely yielded a significantly higher price for what Jefferies has publicly touted as a “scarce and valuable” business,” the lawsuit said.

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

The complaint is available at http://www.bloomberglaw.com/public/document/Herbert_A_Greenway_v_KCG_Holdings_Inc_et_al_Docket_No_20170421_De?doc_id=X1Q6NSCFV282&fmt=pdf

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