ITG under pressure to sell up

Activist hedge fund De Shaw has taken a sizeable minority stake in Investment Technology Group (ITG) and is agitating for the vendor to put itself up for sale.

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ITG under pressure to sell up

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According to a regulatory filing with the US Securities and Exchange Commission (SEC) DE Shaw has increased its holdings in New York-based ITG to 6.2%, making it the vendor's largest shareholder.

The filing includes a letter calling on ITG chief executive Robert Gasser to sell the company or initiate an "aggressive" share buyback programme.

"The time is right for the board to evaluate strategic alternatives to realize shareholder value, including a sale of some or all of ITG's businesses to a strategic or financial buyer," says the letter.

De Shaw argues that the current share price of ITG fails to reflect the fair value of the company's global trading products and platforms, and claims the stock is trading at 30-40% lower than some of its rivals.

Over the past 12 months, relevant equity market volumes have increased more than 40% and the company's revenues are up 34%, yet ITG's share price has declined 17%, says De Shaw.

"The underperformance of ITG's stock price and its low valuation, in spite of its outstanding business and management performance in a thriving industry gives us little confidence that ITG shares will appreciate to fair value in a timely manner if the company chooses to remain as a stand-alone public company with its current capital structure," states the letter.

The hedge fund says "strategic acquirors" - including large financial institutions and exchanges - would be interested in acquiring ITG for its trading technology. While some of these would be interested in acquiring all of ITG, others may be interested in buying certain parts of the business - such as order management platform, algorithmic trading products or crossing systems.

De Shaw says numerous financial acquirors would be interested in pursuing a going-private transaction with ITG. Furthermore, a merger with another industry participant could also yield material synergies and generate estimates cost savings of at least $75 million.

Earlier this week ITG said it was acquiring Chicago-based RedSky Financial, a privately-held broker-dealer specialising in electronic multi-asset class trading, for $22 million.

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