Bloomberg News

Maple Group Faces Own Hurdles for TMX After Blocking LSE Bid

June 30, 2011

(Updates with closing share price in seventh paragraph.)

June 30 (Bloomberg) -- The 13 Canadian banks, pensions and insurers that thwarted London Stock Exchange Group Plc’s bid for TMX Group Inc. face their own challenges in buying the country’s main equity and derivatives exchanges.

Maple Group Acquisition Corp., made up of companies including Toronto-Dominion Bank and Manulife Financial Corp., still needs to win over TMX management and shareholders, while convincing antitrust regulators that its proposed near monopoly on stock trading won’t stifle competition.

While the promise of more money and an exchange controlled by Canadians was enough to derail LSE, it will do nothing to sway competition authorities who have increased inquiries into other industries this year. Maple also must convince investors to sell shares to its offer to get at least 70 percent of TMX stock by its Aug. 8 deadline. No vote has been set for a bid.

“It’s not a slam dunk,” said Thomas Caldwell, chairman and chief executive officer of Caldwell Securities Ltd. in Toronto, whose firm owns TMX shares and backed the LSE bid. “The challenge to Maple is going to be regulatory approval because you have massive concentration.” He added that there would be “13 companies controlling the exchange, and those companies are significantly conflicted.”

Maple plans to combine the Toronto Stock Exchange with Alpha Group, a bank-owned platform, joining venues that handle about 86 percent of the nation’s equity trading. In the U.S., the world’s largest capital market, competition is spread across 13 exchanges.

Not Enough Support

The London and Toronto exchanges said yesterday they won’t proceed with their proposed C$3.32 billion ($3.44 billion) merger, saying they didn’t get support from TMX shareholders controlling at least two-thirds of the company before a meeting scheduled for today.

TMX shares fell 0.9 percent to C$43.80 at 4 p.m. in Toronto. Maple has offered C$50 a share, with as much as 80 percent of the payment in cash. Following the collapse of the LSE transaction, Toronto-based TMX said it will consider alternatives, including remaining independent.

TMX’s board rejected Maple’s bid when it was first announced in May, and later said it was not “superior” to LSE’s all-stock agreement. TMX CEO Thomas Kloet said yesterday that his company will “reassess” the Maple bid “without the LSE Group standard of a superior offer on the table.”

Kloet told reporters today after TMX’s annual investor meeting in Toronto that his company still has “a myriad of possibilities available.”

Own Business Plan

“We, first off, like our own business plan and our own growth strategy opportunities,” Kloet said. “We will look at all opportunities in front of the company, including the Maple offer.”

Luc Bertrand, a Maple spokesman and the former deputy CEO of TMX, said yesterday that the group hopes to meet with the board of the Toronto-based company.

“We genuinely believe Maple’s vision represents the best way forward for TMX Group and the Canadian capital markets,” Bertrand said in a statement.

The bank and broker group must seek antitrust approval from Melanie Aitken, Canada’s Commissioner of Competition, who has recently probed parts of the country’s airline, telephone and real estate industries. This week, Aitken objected to a proposed joint venture between United Continental Holdings Inc. and its Star Alliance partner Air Canada, saying it would monopolize 10 routes and hurt competition.

‘Significant Hurdle’

TMX’s Kloet called the competition approval “a significant hurdle” during today’s press conference.

Caldwell and CI Financial Inc. Executive Chairman William Holland said the Maple proposal will give banks and brokerages too much influence over trading in the nation.

“I just don’t want Maple to have any regulatory powers,” Holland said yesterday in a telephone interview. Toronto-based CI is the largest investor in TMX, according to Bloomberg data.

The group includes Toronto-Dominion, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Caisse de Depot et Placement du Quebec, Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, Alberta Investment Management Corp., Fonds de Solidarite FTQ, Manulife, Desjardins Financial Group, Dundee Capital Markets Inc. and GMP Capital Inc.

Stephen Jarislowsky, ranked the 28th-richest person in the country by Canadian Business magazine, endorsed Maple’s bid on June 24 and said it’s better than the LSE agreement because it prevents foreign ownership.

“We’ve been colonized by the Brits for hundreds of years,” Jarislowsky said yesterday. “We don’t need to be colonized again.”

--With assistance from Whitney Kisling in New York, Nandini Sukumar in London and Matt Walcoff in Toronto. Editors: David Scanlan, Nick Baker

To contact the reporters on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Nick Baker at nbaker7@bloomberg.net


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