LSE Chief Rolet Is Confident of Winning TMX as Shares Surge
May 31, 2011, 7:22 PM EDTBy Nandini Sukumar
June 1 (Bloomberg) -- Xavier Rolet, chief executive officer of London Stock Exchange Group Plc, is confident of winning TMX Group Inc. as the biggest share rally in 10 months boosts the value of his bid compared with a rival offer from Canadian banks and pension funds.
Shareholders in LSE and TMX, owner of the Toronto Stock Exchange, will hold separate June 30 ballots on whether to approve the merger, with two-thirds of TMX investors needed to endorse the C$3.48 billion ($3.6 billion) all-stock offer. TMX has rejected a cash-and-shares bid valued at C$3.58 billion from banks and pension funds led by Luc Bertrand, who helped form TMX when he sold the Montreal Stock Exchange to Toronto.
“It’s a compelling value proposition in terms of share price,” Rolet said in an interview yesterday. “This deal is also about international expansion and seizing new growth. The TMX board has now re-recommended the deal and we are actively promoting the transaction to the market.”
LSE shares surged 13 percent in May, the most since July, as earnings topped estimates and Nasdaq OMX Group Inc. dropped its bid for NYSE Euronext, sparking speculation the New York- based company may look to acquire the operator of Europe’s oldest independent bourse. The increase has boosted the value of LSE’s offer to C$46.76 a share, compared with the competing C$48 bid, according to data compiled by Bloomberg. Rolet declined to comment on whether he has been approached by Nasdaq.
‘Well Balanced Proposal’
LSE’s Feb. 9 agreement would give TMX shareholders 2.9963 shares for each they own. LSE investors would get 55 percent of the company, while TMX shareholders would hold the rest. The competing group of four banks and five pension funds, known as Maple Group Acquisition Corp., began a hostile bid for TMX on May 25 after their approaches were rejected.
“It’s a careful and well balanced proposal,” Rolet said, asked if he was prepared to improve the terms. “You can’t unpick an element without unpicking the whole thing. It does represent a substantial premium to the current TMX share price.”
TMX rose 0.2 percent to C$44.39 at 1:37 p.m. in Toronto yesterday. LSE slipped 1 percent to 980.5 pence in London.
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 2.66 billion pounds ($4.4 billion), LSE is dwarfed by bourses from Hong Kong to Sao Paulo. Under Rolet, LSE has diversified revenue, cut costs and is trying to expand into areas such as derivatives and bonds.
Maple Plan
The Maple plan gives TMX shareholders C$33.52 in cash plus 0.3016 of a Maple share for each TMX share. The group, which was created for the bid, also said it aims to acquire Alpha Group, a bank-owned operator of an alternative trading system that competes with the Toronto exchange, and Canadian securities clearing house CDS Inc. to integrate into TMX after completing the takeover.
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 & Placement du Quebec, Ontario Teachers’ Pension Plan and Fonds de Solidarite FTQ are financing the bid.
LSE’s proposal is “neutral and isn’t dictated by a narrow group of clients,” Rolet said. The Maple offer will lead to “monopoly and national retrenchment,” he said.
Clearing Business
LSE will seek to start the first interoperable clearinghouse between North America and Europe after the TMX deal, said Rolet, who’s been trying to push LSE’s clearing business. The company said May 28 it’s not holding talks with LCH.Clearnet Group Ltd., Europe’s biggest clearinghouse.
In addition to shareholders, LSE’s offer needs approval from Canada’s federal government and provincial securities regulators. LSE and TMX submitted their application to Canada’s federal government on April 29. The country’s industry minister has 45 days, with a potential 30-day extension, to review the application to determine whether the transaction is a “net benefit” to the country.
LSE will continue to seek other opportunities after TMX, Rolet said.
“We will remain opportunistically interested if it fits our strategy,” he said.
LSE’s full-year profit rose 68 percent as post-trade and information and technology services revenue gained and costs declined. Net income for the 12 months ended March 2011 increased to 151.6 million pounds from 90.4 million pounds the year earlier. That beat the 145 million-pound average estimate of six analysts compiled by Bloomberg.
--Editor: Andrew Rummer
To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net
To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net
