A group of Canadian banks and pension funds is offering to buy Toronto Stock Exchange owner TMX Group in a bid that champions a domestic alternative to London Stock Exchange (LSE) Group’s takeover agreement.
Ontario Finance Minister Dwight Duncan said in an interview yesterday that he welcomed the proposal from Maple Group Acquisition Corp, a consortium including Toronto-Dominion Bank that said it would pay more than the current share price of TMX. Toronto-based TMX already trades 7.2 per cent higher than LSE’s February 9 bid.
Nationalist concerns are increasing amid a wave of exchange mergers worldwide, including Singapore Exchange’s October bid for Sydney-based ASX, which was withdrawn after failing to win Australian government support. US Senator Charles Schumer, a Democrat from New York, said in February that his support for Frankfurt-based Deutsche Boerse’s deal for NYSE Euronext of New York was contingent on it being structured as a merger of equals.
“I’m sure nationalism will factor into people’s thinking,” said Shubha Khan, an analyst at National Bank Financial in Toronto. “As far as government and regulators are concerned — though they may not admit it — the takeover of a Canadian exchange by Canadian institutions would probably be more palatable.”
TMX said yesterday it received a cash-and-stock proposal from Maple Group offering more than TMX’s current share price. TMX shares closed at C$41.75 on May 13, or 7.4 per cent higher than LSE’s C$38.89-a-share all-stock agreement from February 9. Maple Group would pay C$48 a share, with 70 per cent in cash and the rest in stock, Financial Times said yesterday.
EQUAL NUMBER
An Ontario government committee reviewing the LSE-TMX deal said in April that the two companies should have an equal number of board seats in the combined entity. The current arrangement would give eight of 15 directorships to LSE, with LSE owning 55 per cent of the corporation. The committee said it had no power to impose its view on the sale, which requires approval from the federal government and the Ontario Securities Commission.
The proposal from banks and pension funds “responds to a number of the concerns that I’ve raised about Canadian control,” Duncan said yesterday. “It just shows that the Canadian financial-services sector can play on the world stage and can continue to take a leadership role.”
TMX didn’t disclose the names of the companies behind Maple Group. Duncan said they are Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Alberta Investment Management Corp, Canada Pension Plan Investment Board, Caisse de Depot et Placement du Quebec, Ontario Teachers’ Pension Plan and Fonds de Solidarite FTQ.
INCLUDING CANADIANS
“I look forward to Canadians having a chance to look at an alternative bid that includes Canadians,” Duncan said.
LSE said in an emailed statement yesterday that the Maple Group offer isn’t “formal” and that LSE remains committed to its takeover of TMX. Carolyn Quick, a TMX spokeswoman, declined to comment beyond the company’s statement.
Canada’s bank-owned brokerages were among the owners of the Toronto Stock Exchange before it was demutualised and taken public in an initial stock sale in 2002. The market, which once handled all trading of Canadian equities, has lost business to firms such as Alpha Group, which is owned by Canada’s six biggest banks as well as the Canada Pension Plan Investment Board. Alpha, founded in 2007, executes about 20 per cent of the nation’s stock volume.
Maple Group’s offer depends on “a number of significant conditions” including regulatory approval for the combination of TMX, Alpha and CDS Inc, TMX said.
LOOKING FOR GROWTH
Alison Crosthwait, director of global trading research at Instinet, said she doesn’t understand the investment case behind the bid from the Canadian banks and pension funds.
“I don’t see where the growth is going to come from,” Toronto-based Crosthwait said in an interview. “They would really just be owning a profitable company, which for the banks may make sense, but for the pension funds, they do need to show investment returns. I don’t know if they can compete with what the LSE is offering in that regard.”
LSE is trying to buy TMX as Chief Executive Officer Xavier Rolet attempts to catch up with bigger rivals and diversify revenue. Without the TMX deal, the exchange that traces its roots back to the coffee houses of 17th century London risks being left out of the industry’s biggest round of consolidation. Valued at £2.24 billion ($3.63 billion), LSE is dwarfed by bourses from Hong Kong to Sao Paulo.
The London bourse owner will have to sweeten its offer to win over TMX shareholders, Crosthwait said.
“The offer is so much lower that the shareholders, who are financially focused, are not going to be able to accept the other being so much lower,” she said. “But if they’re able to come close and provide some case that there’s going to be growth going forward, they may be able to beat it out.”
