Knight Capital Group Inc. rejected a $500 million rescue-loan offer from Citadel LLC on Aug. 5 as it worked on a competing plan from a group of investors, said two people with knowledge of the matter.
The loan terms would have given Citadel a minority stake in Jersey City, New Jersey-based Knight’s stock (KCG:US) and an interest in the market maker’s HotSpot foreign-exchange subsidiary, said the people, who spoke on condition of anonymity because the talks were private. Citadel, the $12.5 billion hedge fund run by Ken Griffin, has a market-making and electronic-trading business.
Citadel, which had walked away from a previous round of talks on Aug. 4, made the offer as Knight Capital was completing a different rescue plan, a $400 million capital infusion from a group of investors led by Jefferies Group Inc. (JEF:US) That transaction, which gives the new investors rights to take a more than 70 percent stake in Knight, was completed on Aug. 6.
“Knight explored a wide range of alternatives,” Kara Fitzsimmons, a spokeswoman for Knight Capital, said in an e- mailed statement. “After a thorough review, Knight determined that the $400 million equity investment was the best and only alternative for the company and its shareholders.”
Katie Spring, a Citadel spokeswoman, declined to comment.
Knight sought the lifeline after a programming malfunction spewed orders through exchanges Aug. 1 and saddled the company with a $440 million trading loss.
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