KCG Plans to Fund Buybacks With Bats Stake Worth $321 Million

  • Bats shares valued at about a quarter of KCG’s market value
  • ‘Shareholders don’t own our stock for ownership of Bats’: CEO

KCG Holdings Inc. plans to start cashing in its Bats Global Markets Inc. shares, liquidating an investment worth about a quarter of the trading firm’s market capitalization.

“It’s a great investment,” KCG Chief Executive Officer Daniel Coleman said Monday at a Barclays Plc conference. “That said, our shareholders don’t own our stock for ownership of Bats.” The money raised will probably fund share repurchases, he said.

Bats, a stock-exchange operator based in Lenexa, Kansas, went public in April, but shareholders subject to a lock-up agreement can’t start selling until next month. Jersey City, New Jersey-based KCG owns more Bats equity than anyone else: 13.2 million shares that amount to a 14 percent stake, according to regulatory filings.

KCG’s stake was worth $321 million as of Monday, or 25 percent of its $1.27 billion market cap. The electronic market maker spent $393 million on buybacks in 2015.

Lock-up agreements prohibit shareholders from selling stock for a fixed period of time following an initial public offering. For Bats, there are three dates when shareholders can start trading: Oct. 12, 2016; April 10, 2017; and Oct. 7, 2017. KCG can sell a third of its stake at each milestone.

For KCG, this moment has been years in the making. Bats tried to go public in 2012, but a technical glitch on its exchange forced it to abandon the IPO. KCG was formed in 2013 when Getco, one of Bats’s earliest investors, bought beleaguered Knight Capital Group.