ITG (NYSE: ITG), a leading agency broker and financial technology provider, today announced that it has reached a definitive agreement for Virtu Financial, Inc. (NASDAQ: VIRT) to acquire all outstanding shares of ITG’s Common Stock for $30.30 per share in cash.
The price represents a premium of more than 40 percent over ITG’s average closing share price of $21.55 in the 30 days prior to news reports of a potential sale on October 4, 2018.
Minder Cheng, Chairman of the Board of Directors, said, “ITG has made tremendous progress in executing on its Strategic Operating Plan over the past two years, and the agreement with Virtu is a result of the dedicated efforts of our management team and employees. After careful consideration, ITG’s Board of Directors determined that the proposal from Virtu, which provides an immediate and significant cash premium, offers the most value for ITG stockholders. The combination of Virtu and ITG will create an industry-leading financial technology franchise with true global capabilities and scale.”
J.P. Morgan is serving as the financial advisor and Wachtell, Lipton, Rosen & Katz is providing legal counsel to ITG.
Additionally, ITG reported results for the quarter ended September 30, 2018.
Third Quarter 2018 Highlights
GAAP net income of $0.2 million, or $0.01 per diluted share, and adjusted net income of $5.4 million, or $0.16 per diluted share. This compares to a GAAP net loss of $47.0 million, or $1.42 per diluted share and an adjusted net loss of $3.6 million, or $0.11 per diluted share, for the third quarter of 2017.
GAAP results for the third quarter of 2018 include: (i) a restructuring charge of $3.4 million, or $0.10 per diluted share, including $2.3 million to reduce office space in Los Angeles and $1.1 million to eliminate certain positions; (ii) a charge of $0.9 million, or $0.03 per diluted share to increase the liability for vacated office space in New York; (iii) $0.8 million, or $0.02 per diluted share, in legal expenses related to the previously announced pending resolution of the U.S. POSIT matter with the SEC.
GAAP results for the third quarter of 2017 included a non-cash charge of $42.3 million, or $1.28 per diluted share, to establish a full valuation allowance for U.S. deferred tax assets, as well as a charge of $1.1 million, or $0.03 per diluted share related to the establishment of the Matrix derivatives venture.
Revenues of $120.8 million, compared to revenues of $114.5 million in the third quarter of 2017. Revenues for the third quarter of 2018 were increased on a net basis by $1.7 million following an accounting rule change implemented in January 2018, which defers the recognition of certain commission revenues until later in the year and accelerates certain software license fee revenues (see discussion below, “Accounting Rule Change”).
GAAP expenses of $118.0 million and adjusted expenses of $112.9 million, compared to GAAP expenses of $116.5 million and adjusted expenses of $115.4 million in the third quarter of 2017. Adjusted expenses for the third quarter of 2018 and the third quarter of 2017 exclude the charges listed above.
GAAP pre-tax income of $2.8 million and adjusted pre-tax income of $7.9 million, compared to a GAAP pre-tax loss of $2.0 million and an adjusted pre-tax loss of $0.9 million in the third quarter of 2017.
Average daily trading volume in the U.S. was 127 million shares versus 125 million shares in the third quarter of 2017. POSIT® average daily U.S. volume was 47 million shares compared to 54 million shares in the third quarter of 2017.
Total average daily U.S. volume traded through POSIT Alert® was 14 million shares in both the third quarter of 2018 and the third quarter of 2017.
In Europe, average daily value traded in POSIT was $0.9 billion compared to $1.0 billion in the third quarter of 2017, including the effects of currency translation. Total average daily value traded through POSIT Alert in Europe rose 45% compared to the third quarter of 2017.
ITG repurchased 4,000 shares for $0.1 million during the third quarter of 2018, as the share repurchase program was suspended during most of the quarter pending final settlement of the previously disclosed U.S. POSIT matter with the SEC. Repurchases since the first quarter of 2010 have totaled 17.8 million shares for $276 million, resulting in a decrease in shares outstanding, net of issuances, of approximately 25%.
Commenting on the results, ITG President and Chief Executive Officer, Frank Troise, said, “Our Strategic Operating Plan has delivered clear results, with increased revenues and improved profitability as compared to the third quarter of 2017. The investments we made in people and technology to deliver best-in-class solutions over the past two years have enhanced capabilities in our core business areas of execution, liquidity, analytics and workflow technology. This morning’s agreement reflects the strength of our franchise, and is a result of the hard work, commitment, and innovation of the ITG team.”
Third Quarter Regional Segment Results
North American revenues were $61.6 million in the third quarter of 2018 as compared to $62.4 million in the third quarter of 2017.
ITG reported a net loss of $2.0 million in North America in the third quarter of 2018 compared to a net loss of $6.6 million in the third quarter of 2017.
U.S. revenues in the third quarter of 2018 were $45.4 million, compared to $47.4 million in the third quarter of 2017. Canada revenues in the third quarter of 2018 were $16.2 million, compared to $15.01 million in the third quarter of 2017.
Europe and Asia Pacific revenues were $58.5 million in the third quarter of 2018, up from $51.6 million in the third quarter of 2017.
ITG reported net income for its Europe and Asia Pacific operations of $11.7 million in the third quarter of 2018, up from $8.0 million in the third quarter of 2017.
European revenues were $40.0 million in the third quarter of 2018, up from $36.3 million in the third quarter of 2017.
Asia Pacific revenues were $18.5 million in the third quarter of 2018, up from $15.3 million in the third quarter of 2017.
Corporate activity reduced GAAP net income by $9.5 million in the third quarter of 2018 and $48.4 million in the third quarter of 2017, including the impact of the charges listed above.
Corporate activity includes investment income and non-operating revenues and gains, as well as costs not associated with operating the businesses within ITG's regional segments, including costs of being a public company, intangible amortization, interest expense, costs of maintaining a global transfer pricing structure, foreign exchange gains and losses and certain non-operating expenses.
For the first nine months of 2018, revenues were $380.7 million, GAAP net income was $1.6 million, or $0.05 per diluted share, and adjusted net income was $24.2 million, or $0.71 per diluted share. For the first nine months of 2017, revenues were $356.9 million, GAAP net loss was $37.0 million, or $1.12 per diluted share, and adjusted net income was $6.3 million, or $0.18 per diluted share.