A takeover of Toronto Stock Exchange owner TMX Group Inc. by a group of Canadian banks and pension funds is “significantly” more likely to succeed after TMX’s board endorsed the C$3.73 billion ($3.73 billion) offer, analysts said.
TMX’s board recommended shareholders accept the C$50-a-share offer from Maple Group Acquisition Corp., whose 13 members include Toronto-Dominion Bank, Ontario Teachers’ Pension Plan and Manulife Financial Corp. The Toronto-based exchange owner said it would cooperate with Maple to push for approvals from securities regulators and Canada’s Competition Bureau.
“Having TMX’s management team and board on the same page as Maple lobbies for regulatory approvals makes this significantly more likely,” Edward Ditmire, an analyst at Macquarie Group Ltd. in New York, said in a telephone interview.
Maple has sought a takeover of the Canadian exchange owner since May 13, when it made an unsolicited offer that challenged a friendly combination between London Stock Exchange Group Plc and TMX. The LSE and TMX scrapped their cash-and-stock transaction on June 30 after failing to get enough shareholder support. Three weeks later, TMX agreed to negotiate with Maple.
“Now that it’s a friendly bid, you’ve got two parties working to make this happen, I would imagine that the shareholders would vote yes,” Alison Crosthwait, director of global trading research at Instinet LLC, said in an interview. “There aren’t many risks to this deal and the cash portion is so large, why wouldn’t you?”
Maple aims 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 yesterday’s statement. 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.
“I believe virtually all the shareholders would support this transaction,” Ditmire said. “It offers significant premium over where the shares are today, and it does give them a chance to continue an equity interest in a company that strategically has some interesting opportunities if it’s able to complete its contemplated combinations with Alpha and CDS.”
Maple agreed to pay a C$39 million fee if the deal doesn’t close because regulatory approvals aren’t obtained. TMX agreed not to seek other bids, though the exchange owner wouldn’t have to pay the fee if a superior hostile bid was accepted.
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, and the Ontario Securities Commission on Dec. 1 and Dec. 2. The Competition Bureau is also reviewing the transaction. Alexa Keating, a spokeswoman for the Competition Bureau, declined to provide a timeline for the examination.
“They still have a major hurdle with the Competition Bureau,” Crosthwait said.
TMX rose 3.4 percent to C$43.80 today.
“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,” TMX Chairman Wayne Fox said in the statement.
Maple needs to acquire 70 percent of TMX shares by Jan. 31 for the transaction to succeed. The statement noted that the offer could be extended until April 30 to gain regulatory approvals.
“At the end of the day these things are decided by price,” said Thomas Caldwell, Toronto-based chairman and chief executive officer of Caldwell Securities Ltd., whose firm owns TMX shares. “It’s a rotten market and if the stock is at C$42 and you get C$50 for 80 percent of it or thereabouts, any portfolio manager is going to take it.”
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 takeover of New York-based NYSE Euronext by Frankfurt-based Deutsche Boerse AG may reduce competition.
TMX CEO Thomas Kloet and Luc Bertrand, a Maple spokesman and vice chairman of National Bank of Canada, said today on a conference call that the transaction will create a globally competitive integrated exchange that may further expand through acquisitions.
“Our view here is to make this organization very strong, so that it can on a global basis be present in future acquisitions and joint ventures and expansion,” Bertrand said.
Senior management of TMX will become senior management of the merged entity, under the direction of Kloet, who will also serve as CEO of Maple, according to the statement. The acquisition will preserve “substantially all” of TMX’s existing employees, the statement said.
“We’re fully committed to working with Maple on this deal,” Kloet said today on the call. “This arrangement is an excellent path forward for Canada’s capital markets, to help us both domestically and internationally from a competitive standpoint.”