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Ontario’s Regulator Sets Conditions for TMX Takeover

May 03, 2012

Ontario’s securities regulator has set conditions for a C$3.73 billion ($3.78 billion) takeover of TMX Group Inc. (X), including ownership restrictions and a requirement for independent board members, that moves the purchase by a group of Canadian banks and pension funds a step closer to approval.

The Ontario Securities Commission today released proposed rules that govern the operation of an exchange and securities clearinghouse created by Maple Group Acquisition Corp.’s takeover of the Toronto Stock Exchange owner. Quebec’s regulator also disclosed conditions for its endorsement of the plan, which still needs approval from Canada’s Competition Bureau.

Maple, whose 13 members include Toronto-Dominion Bank (TD), Caisse de Depot et Placement du Quebec and National Bank of Canada (NA), has waited six months for approvals from regulators for its Oct. 30 agreement with Toronto-based TMX. Maple seeks to buy TMX and integrate it with the Canadian Depository for Securities Ltd. clearinghouse and Alpha Group, a bank-owned exchange operator that competes with the Toronto Stock Exchange.

“Today’s probably the most important milestone, with the next one being the close,” Luc Bertrand, a vice chairman at National Bank who acts as a spokesman for Maple, said in a telephone interview. “We’re on our way to complete this transaction in the timeline we think is very reasonable,” he said, adding that Maple aims to close July 31.

TMX rose 1.3 percent to $47.10 at 4 p.m. in Toronto, edging closer to Maple’s C$50-a-share offer price. Maple is seeking to initially buy at least 70 percent of TMX shares through a tender offer to investors.

Ownership Restrictions

The OSC’s recognition order outlines rules that Maple must follow to become an exchange, such as ownership restrictions that would limit any one person or company from owning more than 10 percent of the company without the OSC’s consent. The conditions are open for public comment until June 4.

“The Commission has thoroughly reviewed the regulatory issues raised by Maple’s proposal and developed measures necessary to ensure that the public interest is protected,” OSC Chairman Howard Wetston said in a statement. “We will carefully consider further input we receive on these orders when making our final determination.”

The company’s board also should be composed of at least 50 percent independent directors, and at least half of the directors should be unrelated to the original Maple shareholders, the OSC said. The chairman would also be both independent and unrelated to Maple shareholders. Bertrand said he’s been asked to join the board as a director.

Switch to For-Profit

The OSC rules also try to address some market concerns on pricing and Maple’s plan to transform the CDS from a non-profit entity into a profitable business. Maple must split any annual revenue increases from CDS clearing and other services with market participants, effective Nov. 1, under the rules. Maple also needs to pay the users an “integration rebate” starting with C$2.75 million in 2013 and rising to C$4 million by 2016 to reflect savings from the takeover.

“The way it’s been structured and what is being proposed is very, very fair for all parties involved,” Bertrand said. “The majority will conclude that this is very fair and what Maple is proposing in terms of market infrastructure is going to allow a lot of broker-dealers out there to flourish.”

Quebec’s Regulator

Quebec’s securities regulator is also seeking comment on CDS, in particular with respect to corporate governance and a new pricing model, the regulator, the Autorite des Marches Financiers, said in a statement. Written comments must be received by June 4.

“The AMF believes it is advisable to submit this latest information for public consultation before issuing any decision with respect to recognizing CDS, TMX Group and Maple as a clearing agency,” the regulator said.

Maple said it will accept the orders from the AMF and OSC if they’re finalized as published. Maple said the orders provide “important changes” in areas including governance, competition and fees for clearing and depository services that may ease concerns of the Competition Bureau, which five months ago expressed “serious concerns” on the transaction.

“It’s the result of a thorough, in-depth process by both the Maple Group and the regulators and the work in conjunction together,” Bertrand said. “It’s a good piece of regulatory framework for a market infrastructure in Canada that will allow us to stay at the forefront of what’s going on in the rest of the world.”

To contact the reporter on this story: Doug Alexander in Toronto at

To contact the editors responsible for this story: Jacqueline Thorpe at; Nick Baker at

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