Bloomberg News

London Stock Exchange Drops $3.4 Billion Bid for TMX Group

June 29, 2011

(Updates with TMX comment and closes shares from eighth paragraph.)

June 29 (Bloomberg) -- London Stock Exchange Group Plc scrapped its bid for TMX Group Inc. after it failed to win shareholder support, opening the door for a competing bid from a group of banks and pension funds trying to keep Canada’s main stock exchange in local hands.

The London and Toronto exchanges said they won’t proceed with the friendly C$3.29 billion ($3.4 billion) merger because they didn’t get the required two-thirds votes cast by proxy ahead of tomorrow’s shareholder meeting, according to a statement today.

The LSE termination paves the way for a rival bid from a group of Canadian banks and pension funds to buy the Toronto Stock Exchange owner. TMX on June 24 called the London offer “superior” and gave no recommendation on the proposal from Maple Group Acquisition Corp. TMX said today it will continue to review the Maple offer.

“The fact the LSE deal is not going to happen reinforces the Maple deal,” said William Karsh, a consultant and former chief operating officer at Jersey City, New Jersey-based Direct Edge Holdings LLC. “Maple doesn’t have to bid anymore. They don’t have to do more than complete what was announced.”

London Stock Exchange Group’s failed bid marks the third time in two months that one of the world’s biggest equity venues failed to close a merger aimed at restoring growth.

Nasdaq Bid

Nasdaq OMX Inc. dropped its hostile bid for NYSE Euronext on May 16 after regulators signaled they would block it. Singapore Exchange Ltd. lost ASX Ltd. on April 5 after Australia’s treasurer said the merger wasn’t in the national interest.

“We are clearly disappointed that despite a majority of both LSEG and TMX Group shareholders voting for our recommended merger, the two-thirds approval threshold for TMX Group shareholders was not met,” LSE Chief Executive Officer Xavier Rolet said in a separate statement.

LSE’s failure to buy TMX is a setback for Rolet and leaves the London bourse vulnerable to a takeover, analysts said.

“LSE will now continue to try to execute strategy and protect market share, but they will struggle to do that,” said Frederic Ponzo, managing partner at London-based GreySpark Partners, which advises financial institutions. “The position to stay independent is becoming less and less tenable.”

“The most likely predator is Nasdaq, but a cooling-off period will likely be in order,” Ponzo said. “It’s the one that would make the most sense.”

Consider Alternatives

TMX Group CEO Thomas Kloet said in a conference call that he’s “confident” in the company’s business plan as a standalone entity, though the exchange owner will consider alternatives.

“We’re going to consider all opportunities in front of us,” Kloet said. “Obviously we will reassess the Maple bid but without the LSE Group standard of superior offer on the table.”

Maple Group, whose 13 members include Toronto-Dominion Bank, Manulife Financial Corp., and Canada Pension Plan Investment Board, spent the last five weeks urging TMX shareholders to reject the LSE bid and consider its C$3.73 billion unsolicited offer.

“We hope we may now engage in a positive dialogue with the TMX Group board,” Maple Group spokesman Luc Bertrand said in a statement. “We genuinely believe Maple’s vision represents the best way forward for TMX Group and the Canadian capital markets.”

Shares Rally

TMX rose 64 cents, or 1.5 percent, to C$44.20 at 4 p.m. trading on the Toronto Stock Exchange, indicating investors are betting the C$50-a-share cash-and-stock bid from Maple bid will go ahead. LSE rose 3.3 percent to 956 pence.

TMX “says clearly that they’re considering the Maple offer, but I think that they’ll also consider alternatives,” said Ed Ditmire, an exchange analyst at Macquarie Group Ltd. in New York.

Bertrand, a National Bank of Canada vice chairman and spokesman for Maple, didn’t return a call seeking comment.

“Maple will stick around. This will be a very bad loss of faith if they bailed now,” said Yemi Oshodi, managing director of M&A and special situations trading at New York-based WallachBeth Capital LLC.

Approvals Needed

Maple Group required TMX shareholders to reject the London offer for its bid to proceed. The Maple Group offer, which expires Aug. 8, would require approvals from Canada’s competition bureau and provincial regulators in Ontario and Quebec.

“I hope that the Maple offer still stands,” said Mathieu Roy, an investment manager at Louisbourg Investments Inc. in Moncton, New Brunswick, which manages about C$1.5 billion including about 100,000 TMX shares. “I’ve been saying all along I prefer the Maple offer, so I can’t be too disappointed.”

TMX, which was advised by banks including BMO Capital Markets, must pay a breakup fee of C$10 million to LSE as part of the merger agreement. LSE was advised by RBC Capital Markets, among other banks.

--With assistance from Sean B. Pasternak and Matt Walcoff in Toronto, Nandini Sukumar in London and Whitney Kisling and Nina Mehta in New York. Editors: David Scanlan, Steven Frank

TO contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net; Matt Walcoff in Toronto at mwalcoff1@bloomberg.net or contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net; Nick Baker at nbaker7@bloomberg.net


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