Bloomberg News

Toronto Exchange Owner Agrees to Support Maple’s Buyout Bid

October 31, 2011

(Updates with share price in fourth paragraph.)

Oct. 31 (Bloomberg) -- TMX Group Inc., the owner of the Toronto Stock Exchange, recommended shareholders accept a C$3.73 billion ($3.72 billion) bid from a group of Canadian banks and pension funds, turning an unsolicited offer into a friendly bid.

Maple plans to buy 70 percent to 80 percent of TMX shares at C$50 a share in cash, and the rest of the stock with Maple shares, according to a statement. Maple, whose 13 members include Toronto-Dominion Bank, Caisse de Depot et Placement du Quebec, and Manulife Financial Corp., agreed to pay a C$39 million fee if the deal doesn’t close because regulatory approvals aren’t obtained.

“The board has unanimously determined that the Maple offer is in the best interests of the company, our shareholders and stakeholders, and advises our shareholders to accept the Maple proposal,” said Wayne Fox, chairman of the board of TMX, in a statement.

TMX agreed July 21 to hold takeover talks with Maple, three weeks after a friendly bid by London Stock Exchange Group Plc failed to get shareholder support. TMX rose 84 cents, or 2 percent, to C$43.20 at 9:45 a.m. trading on the Toronto Stock Exchange.

Regulatory Resistance

Exchange merger announcements totaling more than $30 billion worldwide were made since October last year. The plans have faced resistance from regulators globally, with Austalia’s government killing off a bid by Singapore Exchange Ltd. for control of its main bourse on national interest grounds. The European Commission has raised concerns that the $7.2 billion takeover of NYSE Euronext by Germany’s Deutsche Boerse AG may reduce competition.

Maple, which made an initial unsolicited bid for TMX on May 13, needs 70 percent of the shares of the Toronto-based exchange owner by the offer expiry Jan. 31 for the transaction to succeed. The statement noted that the offer could be extended until April 30 to gain regulatory approvals.

Maple is also seeking to purchase Alpha Group, a bank-owned trading platform that competes with the bourse, and clearing house CDS Inc., the statement said. Maple said it entered into an agreement with Alpha to discuss a purchase price for an offer, according to the statement.

“It will be interesting to see the approval and if they are happy for this vertical silo to be created,” said Simmy Grewal, a London-based analyst covering equity-market structure for Aite Group LLC. A vertical silo refers to one entity controlling both trading and clearing. “The clearing space is key.”

Stable Fees

It is unlikely the costs of trading would increase with the creation of the new company, Grewal said, because the owners of Maple are banks who buy and sell on the exchanges and it “doesn’t make sense for them to increase fees because they are the ones paying them.” The fact that Chi-X Canada, an alternative trading venue, exists in the market should also keep fees from rising, she said.

Senior management of TMX will become senior management of the merged entity, under direction of TMX Chief Executive Officer Thomas Kloet, who will also serve as the CEO of Maple, according to the statement. The acquisition will preserve “substantially all” of TMX’s existing employees, the statement said.

TMX has agreed to coordinate efforts with Maple to get approvals from provincial regulators and Canada’s Competition Bureau, according to the statement. Provincial securities regulators in Quebec and Ontario are planning hearings on the Maple proposal in the next two months, with Quebec’s Autorite des Marches Financiers scheduled to hold hearings on Nov. 24 and Nov. 25 in Montreal.

--With assistance from Rebecca Evans in Sydney. Editors: Nick Gentle, Philip Lagerkranser

To contact the reporters on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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