My 9/17/2000 E-mail to CNBC Squawk Box

Mr. Haines,

I noticed that you have Amy Butte scheduled to appear Monday morning on Squawk Box. Now that Knight Trading is moving up strongly, based on buy out speculation, you will be putting on the one analyst whose claim to fame is bashing this stock.

Where is your balance? Where are all of the other analysts that rate NITE as a buy or a strong buy? And I love the timing of this - let's have Ms. Butte slam Knight just as it's starting a move back up.

Friday's DLJ report on NITE stated:

Our sum of the business opportunities valuation, applying what we believe are a reasonable set of assumptions, prices NITE between $55 and $60 /share.
NITE has three businesses: an equities derivatives market-making business, an equities market-making business, and an asset management business. NITE's equities market making business consists of its operations in the US and nascent efforts in both Asia and Europe. As illustrated by the table below, we've valued these 5 segments separately, using a 10-year DCF model. The detail for each segment is presented below. We believe that we have used fair but conservative assumptions. Based on this analysis and without applying a scarcity value premium, we believe NITE should have an acquisition value between $55 and $60/share.

Compare this to what Amy Butte wrote in her Bear Stearns report on Thursday:

We offer two potential valuation mechanisms for investors looking at NITE's market making franchise: 1) the Herzog Heine Comparable Ð yielding $17 per share; and 2) a Capital Markets Multiple Ð yielding $36 per share.
And DLJ is not alone, Robertson Stephens is on record saying that the acquisition price should be between $45 and $55 per share.

So when Amy Butte starts spouting her views on Knight, I sincerely hope you balance this by reporting that most other analysts have far different views. (Since Butte takes on such a contrarian position in comparison to the other analysts following NITE, it would be quite a show to see her debate her points against the other analysts.)

Also when Amy Butte first began coverage on NITE earlier this year, she said the following:

Owing to our view that Knight's ultimate success is tied to the capital markets and that the firm takes capital risk in order to make money, we return to the tried and true method of brokerage valuation, price to book and price to forward earnings multiples. Using historical averages for the stocks of other capital-markets-focused firms, we think NITE shares deserve to trade near $11.50 to $15.50 per share Ð or 2x our estimated 2000 year-end book value of $5.78 and 10x our 2000 estimated EPS of $1.55 per share.

(Interesting to note that Q1 then came in at 1.07, then Q2 at 0.53. So NITE's Q1+Q2 came in better than Butte's estimate for the entire year! It would be interesting to confront her on her notoriously poor earnings estimates.)

And Ms. Butte also reported:

Because of the stock's lofty valuations and the often-mentioned capital and regulatory risks surrounding Knight Trimark, we think the likelihood of a takeover is limited.

(Another great prediction that she should be challenged on.)

Thank you,

Jim Jacobson

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