CHESTER COUNTY EMPLOYEES' RETIREMENT FUND on behalf of itself and all other similarly situated former stockholders of KCG HOLDINGS, INC., Plaintiff,
KCG HOLDINGS, INC., DEBRA J. CHRAPATY, DANIEL COLEMAN, PETER R. FISHER, CHARLES E. HALDEMAN, JR., RENE M. KERN, JAMES T. MILDE, JOHN C. (HANS) MORRIS, ALASTAIR RAMPELL, DANIEL F. SCHMITT, LAURIE M. SHAHON, COLIN SMITH, HEATHER E. TOOKES, ADRIAN WELLER, VIRTU FINANCIAL, INC., and JEFFERIES LLC, Defendants.
Submitted: March 20, 2019
Michael Hanrahan, Paul A. Fioravanti, Jr., Kevin H.
Davenport, Samuel L. Closic, Eric J. Juray, PRICKETT, JONES
& ELLIOTT, P.A., Wilmington, Delaware; Eric L. Zagar, J.
Daniel Albert, Stacey A. Greenspan, Matthew C. Benedict,
KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania;
Jeremy S. Friedman, Spencer Oster, David F.E. Tejtel,
FRIEDMAN OSTER & TEJTEL PLLC, New York, New York; Counsel
for Chester County Employees' Retirement Fund.
A. Mason, Brendan W. Sullivan, PAUL, WEISS, RIFKIND, WHARTON
& GARRISON LLP, Wilmington, Delaware; Andrew G. Gordon,
Susanna M. Buergel, PAUL, WEISS, RIFKIND, WHARTON &
GARRISON LLP, New York, New York; Counsel for Virtu
Financial, Inc. and KCG Holdings Inc. (n/k/a Virtu KCG
William M. Lafferty, Ryan D. Stottmann, Coleen W. Hill,
MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington,
Delaware; Counsel for Defendants Debra J. Chrapaty, Daniel
Coleman, Peter R. Fisher, Charles E. Haldeman, Jr., Rene M.
Kern, James T. Milde, John C. (Hans) Morris, Alastair
Rampell, Daniel F. Schmitt, Laurie M. Shahon, Colin Smith,
Heather E. Tookes and Adrian Weller.
Gregory V. Varallo, Kevin M. Gallagher, Sarah T. Andrade,
RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Brian A. Herman, John M. Maloy, MORGAN, LEWIS & BOCKIUS
LLP, New York, New York; Counsel for Jefferies LLC.
2017, Virtu Financial, Inc. ("Virtu") acquired KCG
Holdings, Inc. ("KCG") for $20 per share. In this
case, a former KCG stockholder alleges KCG's directors
failed to maximize value for the KCG stockholders in
negotiating the merger, largely because of the actions of
different influencers at both the beginning and the very end
of the process that led to the transaction.
front end of the process, the plaintiff points to secret
dealings between Virtu and Jefferies LLC
("Jefferies"), KCG's largest stockholder and
long-time financial advisor, which allegedly undermined the
KCG board's ability to extract greater value from Virtu.
The plaintiff contends that beginning in December 2016 and
continuing through February 2017, Virtu and Jefferies met and
discussed a potential acquisition of KCG. During that time,
Jefferies proposed to Virtu that a sale of KCG's
standalone bond-trading platform, BondPoint, would increase
KCG's tangible book value ("TBV") to over $21
per share. Jefferies even gave Virtu confidential information
about BondPoint, information which the plaintiff alleges
Jefferies obtained as KCG's financial advisor. The
plaintiff posits that by mid-February, Virtu and Jefferies
had agreed that Jefferies would support a $20 per share deal
price, and Virtu would sell BondPoint post-acquisition using
Jefferies as its financial advisor.
KCG's board was unaware that Virtu was interested in
acquiring KCG until late February. On February 23, 2017,
Virtu sent KCG's board a proposal to acquire KCG at a
price in the range of $18.50 to $20 per share. At the time,
Jefferies was advising KCG's board on a restructuring
plan that KCG's management believed was a financially
superior alternative to KCG's offer. KCG's board
still determined to engage in negotiations with Virtu at
before KCG received Virtu's initial expression of
interest, Jefferies informed KCG's board of some-but not
all-of its discussions with Virtu. Not immediately, but
eventually, KCG became suspicious of Jefferies, tried to
exclude Jefferies from the sales process, and hired another
financial advisor. But Jefferies continued to advise KCG on
the restructuring plan and pressure KCG's board to pursue
a transaction with Virtu.
back end of the process, the plaintiff points to different
culprits. In April 2017, Virtu made its best and final bid of
$20 per share. Every director except for KCG's chief
executive officer, Daniel Coleman, approved a $20.21 per
share counteroffer. Coleman told the board that a $20.21
counteroffer was "too low" and that the
restructuring plan would create 25% more value than KCG's
offer. Still, Coleman promised that he would support the
merger if he could negotiate a satisfactory
compensation and retention pool for himself and his
management team. Coleman's desire to obtain compensation
for his management team conflicted with the KCG board's
obligation to maximize consideration paid to the KCG
stockholders. Despite this conflict, the board authorized
Coleman to negotiate simultaneously the compensation pool and
deal price. In the end, KCG rejected the $20.21 counteroffer
and Coleman negotiated a compensation pool to his
satisfaction. Then, the KCG board-including Coleman-approved
a $20 per share price.
concerns, the night before the board approved the $20 per
share price, Coleman and his management team revised the
company's financial projections to be more pessimistic.
The plaintiff says that the board approved those revisions
over email. KCG's financial advisor then based the
fairness opinion on the more pessimistic projections. With
the revised projections, the deal price fit squarely in the
middle of the financial advisor's discounted cash flow
plaintiff commenced this litigation shortly after KCG
announced the merger. Initially, the plaintiff sought a
preliminary injunction based on a claim that the merger was
subject to anti-takeover measures found in Section 203 of the
Delaware General Corporation Law. After discovery on the
preliminary injunction motion, KCG issued a new proxy
designed to moot the plaintiff's Section 203 claim, and
the plaintiff withdrew the preliminary injunction motion.
Using documents and testimony obtained in the preliminary
injunction phase, the plaintiff amended its complaint to
allege that the director defendants breached their fiduciary
duties in negotiating and approving the merger and that Virtu
and Jefferies aided and abetted in those breaches. The
plaintiff also asserted a civil conspiracy claim against
Virtu and Jefferies.
defendants have moved to dismiss the complaint. They argue
that the merger is subject to the deferential business
judgment standard of review under Corwin v. KKR Financial
Holdings LLC because it was approved by a majority of
KCG's stockholders in a fully informed, uncoerced
plaintiff, however, has identified three significant
deficiencies in the defendants' disclosures concerning
the merger that render the stockholder vote uninformed.
the proxy fails to disclose detailed information about the
BondPoint divestiture strategy proposed by Jefferies to
Virtu. The proxy instead includes an ambiguous statement that
Jefferies proposed that "certain divestitures"
could raise KCG's TBV, creating the misleading impression
that the divestiture strategy was undeveloped. By contrast,
the complaint portrays a detailed, BondPoint-specific
divestiture strategy informed by confidential financial
information not previously disclosed to the stockholders.
Next, the proxy fails to disclose Coleman's initial
"too low" view of the $20.21 per share
counteroffer, later support of the $20 per share deal price,
and intervening negotiations of the compensation pool. Last,
the proxy fails to disclose the more optimistic, earlier
projections presented during the merger negotiations and the
circumstances surrounding the creation of the later revised
projections. It is reasonably conceivable that a stockholder
would view the omitted facts as material and that the
information disclosed is materially misleading.
the plaintiff alleges facts sufficient to support a finding
that the stockholder vote was not fully informed,
Corwin does not lead to dismissal.
independent basis for dismissal, the defendants argue that
the plaintiff fails to state non-exculpated claims against
the director defendants. The complaint, however, adequately
alleges that the director defendants were fully complicit in
the procedural flaws at the back-end negotiations. According
to the complaint, the director defendants knowingly placed
Coleman in a position to extract compensation for management
at the expense of the per share merger price received by the
stockholders. They then approved last-minute revisions to the
company's projections that made the deal price more
reasonable relative to the company's discounted cash flow
valuation. These actions are enough to infer bad faith and
state a non-exculpated claim for breach of fiduciary duties.
claims of aiding and abetting and conspiracy against Virtu
and Jefferies also survive the defendants' motion. Claims
for breach of the duty of care, though exculpated, provide a
valid predicate for claims of aiding and abetting. Here, at a
minimum, the plaintiff's concerns about the front-end
process flaws concerning Jefferies and Virtu's secret
negotiations adequately state a claim that the director
defendants breached their duty of care. The complaint also
adequately alleges that Virtu and Jefferies created the sort
of informational vacuum this Court has found sufficient to
constitute knowing participation in a breach of fiduciary
duties in support of an aiding and abetting claim. Further,
the complaint adequately alleges facts from which it can be
inferred that Virtu and Jefferies conspired to pursue the
merger for their own benefit and to the detriment of the
background facts come from the Verified Second Amended Class
Action Complaint (the "Complaint") and documents it
Jefferies' History with KCG
a global financial services firm that offered market-making,
high-frequency trading services across asset classes, product
types, and time zones. KCG was the product of a 2013 merger
between GETCO Holding Company, LLC and Knight Capital Group,
Inc. ("Knight Capital"). Jefferies had owned an
interest in Knight Capital. As a result of the 2013 merger,
Jefferies received a large pay-out and financial advisory
fees while simultaneously retaining a substantial equity
position in Knight Capital, later named KCG. Over the next
three years, Jefferies nearly doubled its stake in KCG and
continued to receive substantial financial advisory fees. In
the fall of 2016, Jefferies advised KCG to repurchase the
largest stockholder's shares. After the buyback,
Jefferies became KCG's largest stockholder, owning
approximately 24% of KCG's outstanding stock. The
Complaint alleges that in 2016, Jefferies was looking to cash
out of its KCG investment.
Virtu Reaches Out to Jefferies to Express an Interest in
was one of KCG's primary competitors. It had
unsuccessfully pursued an acquisition of Knight Capital in
2012. By late 2016, Virtu viewed KCG's stock price as
depressed and considered acquiring KCG. On December 19, 2016,
Virtu's controlling stockholder, Vincent Viola, told
Jefferies' CEO Richard Handler about Virtu's interest
in acquiring KCG.
after his meeting with Viola, Handler began negotiating a
deal to sell KCG to Virtu. Handler asked Alexander Yavorsky,
a Jefferies investment banker and long-time advisor to KCG,
to analyze a $20 per share acquisition of KCG. The $20 per
share price was based on the projected increase in KCG's
TBV-the value of a company's equity after removing
intangible assets-resulting from a sale of KCG's
standalone bond trading platform, BondPoint. The next
morning, Yavorsky provided Handler an analysis illustrating
that BondPoint's sale would likely yield at least $200
million in proceeds and raise KCG's TBV by more than
$2.20 per share to between $21 and $21.50 per share.
December 20, 2016, Handler met with Virtu's CEO, Douglas
Cifu, who proposed that Virtu acquire KCG for $17 to $18 per
share. Relying on Yavorsky's analysis, Handler countered
that TBV was the proper way to value KCG, and that KCG's
TBV would increase to at least $21 per share upon
BondPoint's sale. Two days later, Cifu sent a text
message to Handler saying that Jefferies' position on
KCG's sale was "loud and clear," and Cifu was
"[g]oing to run through some models with [Viola]"
and get back to Handler in January 2017.
December 27, 2016, Handler emailed KCG's CEO, Daniel
Coleman, to suggest that KCG sell BondPoint and use the
proceeds to repurchase KCG shares. Coleman responded that at
that time KCG was not interested in a sale of BondPoint,
which was experiencing rapid growth. Handler did not disclose
to Coleman his discussions with Virtu. At the time, KCG
management was developing a restructuring initiative (the
"Restructuring Plan"). Indeed, Jefferies was
assisting KCG with this effort. Coleman stated that a sale of
BondPoint might be worth considering after the restructuring.
prepared for negotiations concerning KCG throughout January
2017. In preparing, Virtu assumed a post-acquisition sale of
BondPoint. On January 24, 2017, Virtu's CFO, Joseph
Molluso, had Virtu's financial advisor, J.P. Morgan
Securities LLC ("J.P. Morgan"), prepare a
sensitivity table calculating KCG's TBV after a sale of
BondPoint and repurchase of shares.
Yavorsky delivered an hour-long presentation on KCG to Virtu
on February 14, 2017. Notes from the meeting indicate that
Yavorsky shared with Virtu confidential information regarding
BondPoint, which Jefferies acquired as KCG's financial
advisor. That information included BondPoint's EBITDA,
growth rate, and projected value. KCG had never publicly
disclosed that information nor authorized Jefferies to
disclose it to Virtu.
next day, Jefferies' Yavorsky floated a potential price
range to Virtu's Molluso. Yavorsky stated that Jefferies
was "[f]ocused on a price with a 2 handle," and
Molluso "socialized that there [was] a bid offer [of]
$18-$20 . . . ." In an internal Virtu update, Molluso told
Viola that Jefferies "[c]learly wants to do
something." Viola responded, "[w]e can make a
and Virtu's CEOs met on February 16, 2017. They discussed
KCG's TBV and the price Jefferies would accept for its
KCG shares. A few hours later, Molluso emailed Yavorsky to
discuss BondPoint. Over the next few days, Handler and Cifu
exchanged text messages on the timing and contents of
Virtu's initial bid to KCG.
Virtu Offers to Acquire KCG
plaintiff posits that, by the February 16, 2017 meeting of
and Virtu had reached a meeting of the minds that Jefferies
would support Virtu's acquisition of all outstanding KCG
shares for $20 per share. It was not until February 21, 2017,
however, that Jefferies informed KCG of Virtu's interest
in acquiring KCG. At that time, Handler told Coleman that
Virtu would be making a formal offer to acquire KCG. Handler
did not disclose to Coleman or anyone else at KCG that he had
been negotiating with Virtu over the past two months.
February 22, 2017, Jefferies' Yavorsky told KCG's
deputy general counsel about his February 14 meeting with
Virtu. The deputy general counsel shared the news with
KCG's general counsel, who then called Yavorsky directly.
During these conversations, Yavorsky only discussed his
February 14 meeting and did not provide information
concerning his other communications with Virtu.
February 23, 2017, Virtu's Cifu emailed KCG's Coleman
a non-binding indication of interest to acquire KCG at a
price in the range of $18.50 to $20 per share in
cash. This offer represented a significant
premium to the then-current trading price of $14.31, but it
received a cool reception.
acknowledged Virtu's bid, but accelerated
management's efforts on the Restructuring Plan, which
"management believed would return more capital to
stockholders with less risk and disruption than a transaction
with Virtu . . . ." At that time, Coleman did not know the
full extent of Jefferies' discussions with Virtu and he
engaged Jefferies, and specifically Yavorsky, to help
formulate the Restructuring Plan.
KCG's Board Retains Advisors
February 26, 2017, KCG's twelve-person board of directors
(the "Board") established a four-person
sub-committee of outside directors to recommend an
independent financial advisor to advise KCG in negotiations
with Virtu. The subcommittee met with various firms.
March 15, 2017, the Board met and decided, at the
recommendation of the sub-committee, to retain Goldman Sachs
("Goldman") as KCG's financial advisor, and
Sullivan & Cromwell LLP as KCG's legal advisor.
KCG and Virtu Negotiate the Merger Agreement
March 15 meeting, the Board discussed the Restructuring Plan
and Virtu's bid. Coleman stated "management's
belief that the value from the [Restructuring] Plan would be
approximately 25% higher than" Virtu's offer, and
stated "there was the potential for significant upside
above and beyond the [Restructuring] Plan if the markets were
to revert to more normal conditions." The
Board's advisors agreed with this analysis. The Board
concluded that Virtu's offer, even at the $20 per share
price at the top-end of the range, undervalued KCG.
before the March 15 Board meeting, however, Jefferies had
reached out to KCG to encourage it to engage in discussions
with Virtu. And at the Board meeting, despite the
directors' view that Virtu's offer undervalued KCG,
the Board determined to engage with Virtu as Jefferies
recommended. Goldman took away from the meeting that
"Jefferies (in [its] capacity as shareholder) told both
the KCG chairman and CEO that if they didn't engage with
Virtu, they would 'no longer be aligned, '" and
that Jefferies was "[h]ighly likely to support a
takeover; [and] gave price guidance to Virtu prior to its
letter to Virtu dated March 15, Coleman requested additional
detail from Virtu on what he described as key execution risks
related to the proposed transaction, including with respect
to retaining KCG employees. Coleman conditioned further
discussion with Virtu on "threshold issues,"
including whether Virtu would (i) raise its price range
which, "even at the top-end of the range, significantly
undervalue[d] KCG," and (ii) share its retention and
compensation plans for KCG's employees.
responded on March 16, proposing a form of non-disclosure
agreement. On March 17, Virtu and KCG entered into
a non-disclosure agreement to allow KCG to commence its
diligence process. Virtu received access to KCG's data
room on March 20.
KCG Attempts to Cabin Jefferies' Involvement in the
was frustrated that KCG selected Goldman over Jefferies and
continued to push to be retained as an advisor on the merger.
Handler demanded to meet with Coleman because, "given
all the history, [Coleman] owe[d] [him] that . . . . [H]e
deserve[d] this and w[ould] be extremely upset if [Coleman]
however, had grown distrustful of Yavorsky. After KCG
received Virtu's March 16 communication, it became clear
that Virtu and Yavorksy were in contact. Coleman instructed
Virtu to cease communications with Yavorsky and to deal
directly with Goldman. KCG also requested details about
Jefferies' communications with Virtu. Jefferies' did
not respond immediately. On March 29, 2017, Jefferies
provided a timeline. The timeline omits: reference to the
February 16 meeting of CEOs regarding KCG's value; that
Handler assisted Virtu in drafting its initial February 23
bid letter; and that Jefferies shared confidential
information with Virtu regarding BondPoint.
informed Handler that he did not trust and did not want to
work with Yavorsky specifically. Despite Coleman's
reservations, Coleman offered Jefferies a $1 million advisory
fee for the Restructuring Plan. Handler wanted more and
insisted on "a real advisory role with a fair fee"
as KCG's merger advisor.Coleman agreed and recommended
to the Board that Jefferies serve as co-advisor with Goldman
on the merger. Ultimately, a committee of the Board rejected
Other Expressions of Interest
the March 15 Board meeting, various news outlets published
articles disclosing that Virtu had made an unsolicited offer
to purchase KCG. This news led to a dramatic increase in
KCG's stock price. KCG issued a press release confirming
that it had received an unsolicited proposal from Virtu to
acquire all of the outstanding KCG common stock for $18.50 to
$20.00 per share in cash. Virtu also issued a press release
confirming that it had made an offer to acquire KCG.
March 16, an entity identified in the proxy as "Party
A" contacted Coleman to inform him that Party A was
interested in exploring a strategic combination with KCG.
Party A executed a non-disclosure agreement, obtained access
to the data room, and held diligence sessions with members of
KCG's management team. By March 24, however, Party A had
informed Coleman that it was no longer interested in pursuing
a possible transaction.
March 23, the Board instructed Goldman to reach out to other
possible bidders for KCG. At a March 29 meeting of the KCG
Board, Goldman reported to the Board that it had reached out
to six potential bidders. Only one of the six, "Party
B," expressed interest in receiving more information
about KCG. A few days later, Party B withdrew its expression
of interest and did not enter into a non-disclosure agreement
Virtu Offers $18.50 Per Share
April 10, 2017, Virtu offered $18.50 per share in cash to
acquire KCG. Virtu's bid letter enclosed a voting
agreement requiring Jefferies to support a sale of KCG to
Virtu (the "Voting Agreement").
next morning, Jefferies' Handler emailed Coleman
insisting that Virtu would do a deal at $20 per
share. Roughly two hours later, Handler emailed
Coleman again: "To be crystal clear, I have direct
reason to be highly confident V[irtu] will do a deal at 20
dollars per share in cash today. That is what the [B]oard
should be considering."
a Board meeting on April 11, Coleman and others reported on
Jefferies' communications regarding the $20 per share
deal. Coleman reiterated that the Restructuring Plan could
return $500 million to KCG shareholders within the next five
fiscal years, and that the "[v]alue from [the]
[R]estructuring [P]lan should be ~25% higher than
[Virtu's] bid," with significant additional upside
should market volatility return to normal
conditions. After this discussion, the KCG Board
rejected Virtu's $18.50 offer. The Board instructed
management to counter Virtu's offer "with an open
ended price per share above $20.00."
Virtu Increases Its Offer to $20 Per Share
response to KCG's demand for an open-ended price above
$20 per share, on April 12, 2017, Virtu delivered its
"best and final" $20 per share bid. Jefferies
told KCG's Board Chairman Charles E. Haldeman, Jr.
"that a $20 price per share would be embraced by
Board meeting held that same day, all Board members but
Coleman voted in favor of a counter-offer of $20.21 per
share-KCG's book value at the close of the first quarter
of 2017. Coleman opposed the counteroffer because it
"was still too low." Yet Coleman promised to
support the offer if Virtu could eliminate "closing
risks, particularly personnel risks and the retention pool .
. . ."
next morning, Coleman delivered KCG's $20.21 counteroffer
stating that the Board conditioned its approval of the merger
on Virtu's agreement to a compensation and retention pool
for KCG's employees. That afternoon, Coleman updated
Haldeman on his compensation negotiations with Cifu. Haldeman
asked if Coleman had heard anything from Virtu about price;
Coleman responded that he had not. The next morning, Haldeman
emailed Coleman, "[p]erhaps you can get the comp issued
resolved and then you can resolve the price
April 15, 2017, Virtu had yet to agree to a compensation
proposal to Coleman's liking. Haldeman encouraged him to
keep negotiating. On April 17, 2017, Coleman informed the
Board that he was still negotiating the compensation pool and
waiting for a response to the latest counteroffer.
Cifu finally delivered Virtu's proposal on the
compensation and retention pool, Coleman reported to Haldeman
that "[t]hese numbers won't hold it together. I see
no reason to hang out . . . . We have given on every
Haldeman's suggestion, Coleman created an exhibit
illustrating outstanding compensation issues, which depicted
a $13 million difference on the amount of bonus compensation
for KCG's top management (close to the $13.5 million
difference between KCG's $20.21 counter-offer and
Virtu's $20 bid). Later that afternoon, Virtu rejected
KCG's $20.21 counteroffer. That evening, Cifu reached an
agreement with Coleman regarding the compensation pool, and
Coleman emailed Haldeman, "[s]ounds like we have a deal
on comp[.]" Despite
Virtu's earlier rejection of the $20.21
counteroffer, Haldeman thought this was good news. He
responded: "[G]reat news. Thank you for your
understanding on this. The Board is very appreciative on
April 19, 2017 meeting, the Board unanimously approved
Virtu's $20 offer subject to Goldman's delivery of a
fairness opinion. Later that evening, Jefferies and Virtu
also executed their Voting Agreement.
the Board meeting, Coleman revised KCG's projections
downward. Approximately six hours after the Board meeting
ended, Coleman's management team circulated new five-year
projections (the "Revised Projections") for
KCG's standalone value under the Restructuring Plan. The
Revised Projections differed from the projections that
Coleman presented to the Board at the March 15 and April 11,
2017 Board meetings. The Revised Projections (i) lowered
KCG's 2017 net revenue forecast by 2.6% and its 2017
adjusted EBITDA forecast by 21.8%; (ii) cut adjusted EBITDA
by $28 million for the terminal year; (iii) cut 2017 adjusted
net income by 42.8% from the April 11 projections; and (iv)
shrunk KCG's projections for net revenue, adjusted
EBITDA, adjusted net income and book value for all five
years. Coleman requested that the directors (the
"Director Defendants")approve the changes reflected in the
Revised Projections that evening to permit KCG to announce
the merger before the Board's self-imposed deadline of
April 20, 2017. The Director Defendants approved them by
used the Revised Projections to change the assumptions
underlying its discounted cash flow ("DCF")
analysis. Due to the revisions, Virtu's $20 bid moved
from the bottom to the middle of the DCF range.
circulated its fairness opinion to the Board at 5:05 a.m. on
April 20, 2017. The Board met at 6:30 a.m., and by 7:00 a.m.,
the Board had approved the merger.
on April 20, 2017, KCG issued a press release announcing the
merger. The press release announced that the $20 per share
merger consideration represented a premium of approximately
45.7% over the unaffected stock price. This premium was
higher than the median premium in similar transactions for
each of the last five years, according to the press release.
The merger consideration also represented a premium of
approximately 12.7% over the closing price of KCG's stock
on April 19, 2017, the last trading day before KCG and Virtu
entered into the final merger agreement.
same press release, KCG also announced negative pre-tax
earnings for the first quarter of 2017 and a steep decline in
net revenues from roughly $250 million for the first quarter
of 2016 to less than $149 million for the first quarter in
2017. The press release further disclosed that, as of March
31, 2017, KCG had a TBV of $18.61 per share and a book value
of $20.21 per share.
The Proxy and the Preliminary Injunction Proceedings
1, 2017, KCG filed a definitive proxy statement in connection
with the stockholders' vote on the merger. The next day,
former plaintiff Herbert Greenway, a KCG stockholder,
commenced this litigation against each of the Director
Defendants, KCG, Virtu, Virtu subsidiary Orchestra Merger
Sub, Inc., and Jefferies. Along with claims for breach of
fiduciary duty and aiding and abetting, Greenway's
initial complaint challenged the merger under 8 Del.
C. § 203 ("Section 203").
9, 2017, this Court granted expedited discovery on the
Section 203 claim alone. After expedited discovery, which
included document production and four depositions, KCG issued
a new proxy (the "Proxy") to moot the Section 203 claim.
Greenway's counsel then withdrew the preliminary
injunction motion on June 30, 2017.
to KCG, at the rescheduled vote held on July 19, 2017, 75.5%
of KCG's shares, excluding the interested shares, voted
in favor of the merger. The merger closed on July 20, 2017.
Post-Merger Sale of BondPoint
2, 2017-the day after KCG issued the original proxy-Virtu
told Jefferies that Virtu "would be in touch" to
move forward a sale of BondPoint. Jefferies gave Intercontinental
Exchange, Inc. ("ICE") a BondPoint pitch book six
days later-before the originally scheduled stockholder vote.
On October 24, 2017, Virtu announced an agreement to sell
BondPoint to ICE for $400 million in cash. The sale closed on
January 2, 2018. Jefferies acted as Virtu's financial
advisor on the sale. Virtu received $276 million in after-tax
proceeds, paid Jefferies a $7 million fee, and applied the
rest to pay down its merger-related debt.
February 14, 2018, Chester County Employees' Retirement
Fund ("Plaintiff") filed the first amended
complaint, which the defendants ("Defendants")
moved to dismiss. In response, on July 16, 2018, Plaintiff
filed the second amended complaint and Defendants renewed their motion to
dismiss. The parties completed briefing on November 9, 2018,
 and the Court held oral
argument on March 20, 2019.