What’s the best scenario, a hostile takeover of TMX Group by a consortium
of Canadian banks, pension plans
and other big market players, or a
controversial merger with a transatlantic partner?
That’s the question groups representing individual and institutional investors are grappling with
in light of rival bids for the Canadian capital markets company
which runs the Toronto Stock
Exchange, the Montreal derivatives market and junior TSX Venture Exchange.
The board of TMX Group
favours a union with the London
Stock Exchange (LSE) Group,
touting it as a “merger of equals”
that will promote strong opportunities for growth. TMX shareholders are being asked to vote on
the offer at a special meeting
slated for June 30.
However, Maple Group Acquisition Corp. has spoiled that party
by making a $3.6-billion bid of its
own. The TMX board rejected the
offer, on the basis that the LSE
merger is a better deal, but Maple
has presented its takeover bid to
individual TMX shareholders via a
circular that was mailed out in
early June. It hopes to seal the deal
with them by fall.
On June 13, the TMX board
said it would further review the
Maple Group offer after new
players joined the bid, but the
board underscored the fact that
they continue to pursue the rival
LSE Group initiative.
Desjardins Financial Group,
Dundee Capital Markets, GMP
Capital Inc. and Manulife Financial have each joined Maple
Group.
There are a number of hurdles
to overcome before either bid
could move forward. The Canadian Competition Bureau recently
issued a “no action letter” on the
TMX-LSE proposal, which means
the merger will not be challenged.
However, it still must be cleared by
Industry Canada under the
Investment Canada Act. The bid by
Maple, meanwhile, still must be
reviewed by the Competition
Bureau. Both deals are also subject to review by securities regulators in Ontario, Quebec, Alberta
and British Columbia.
Ermanno Pascutto, executive
director of the Foundation for the
Advancement of Investor Rights
(FAIR) Canada, and Ian Russell,
president and CEO of the Investment Industry Association of
Canada (IIAC), both see merits in
the Maple bid, as it would keep the
country’s three main exchanges in
Canadian hands.
However, they’re also cautious
about the Maple proposal as such a
move would create a monopoly
with one entity operating the
listing, trading and clearing functions in Canada.
“If the Maple bid is going to be
allowed to go ahead then it will
“If the Maple bid is going to be allowed
to go ahead then it will almost certainly
win out over the LSE bid.”
Ermanno Pascutto, Foundation for the Advancement of Investor Rights
almost certainly win out over the
LSE bid,” said Pascutto. “I say that
just by the market reaction. When
the bid was announced, the shares
of TMX went up substantially,
which means basically that the
market is saying they value the
Maple bid at a much higher level
than the LSE bid, period.”
Other things being equal, Pas-
cutto said it’s better for investors if
control of the country’s trading
If the deal is approved, Maple
intends to combine the TMX
Group with the rival Alpha
exchange and Clearing and Depos-
itory Services (CDS) to create an
integrated trading and clearing
exchange. Alpha and CDS are
already partially owned by the
major banks involved in the Maple
bid and they have committed to
making the venture work.
“The merger story with the LSE integrates the trading sys-
tems but in terms of clearing cash securities it doesn’t
have a bearing on that at all.”
Ian Russell, Investment Industry Association of Canada
systems and exchanges remain in
Canada.
“Whether it’s Maple or some
other Canadian bid, I think it’s pos-
itive for our major exchanges to be
owned in Canada and governed
from Canada and not be governed
remotely from overseas. I think
that’s a positive move. It just
makes life easier for regulators if
the people they have to deal with
are Canadian directors and based
in Canada.”
Russell of the IIAC isn’t
endorsing one bid over the other,
however, he said the Maple bid
would mean the exchanges stay in
Canadian hands, which is a big
plus for the country.
“It’s building a bigger Canadian
platform.”
The Maple bid would also inte-
grate the listing, trading and
clearing functions, something the
TMX-LSE bid does not, he said.
could be raised because there is no
competition.
RUSSELL
“There are concerns that the
industry would have about
ensuring competitive pricing,”
said Russell. “This doesn’t, on the
face of it, mean a rejection of the
deal, but it means that there has to
be an appropriate remedy to safe-
guard competitive pricing and a
competitive equity market trading
and clearing settlement system.”
“If they’re moving from non-
profit to profit they shouldn’t
simply be able to just keep
increasing their fees,” he said.
“Like any utility that has a
monopoly, it would have to be reg-
ulated.”
Gilles Bisson, Ontario New
LSE integrates the trading systems
but in terms of clearing cash secu-
rities it doesn’t have a bearing on
that at all,” explained Russell. “It’s
a very important synergy to be
Democrat MPP for Timmins-
James Bay, who was on an all-
party committee that reviewed the
TMX-LSE proposal, said he sup-
ports the Maple bid because con-
trol of the country’s three
exchanges would remain in the
hands of Canadians.
