Jefferies Group Inc. (KCG), the New York- based brokerage that helped arrange a $400 million bailout for Knight Capital Group Inc., has converted almost all of the preferred shares it acquired in the transaction to common stock.
The conversion almost doubled the outstanding stock of Knight, which was pushed to the brink of bankruptcy after its computers mistakenly bombarded U.S. markets with share orders on Aug. 1. Almost 182 million common shares were outstanding as of yesterday compared with 97.8 million on Aug. 31, according to data compiled by Bloomberg.
Jefferies helped assemble the group of investors that bought convertible securities representing a 73 percent stake. While the money enabled Jersey City, New Jersey-based Knight to remain solvent, it diluted existing stockholders whose ownership proportion will shrink as the convertibles are exercised.
“It’s a moot point from a shareholder perspective, because if you were holding the stock back on July 31 you were diluted,” said Chris Allen, an equity analyst at Evercore Partners in New York. “You lost money.”