TMX Hunt for CBOE Seen After Maple Approval

TMX Hunt for CBOE Seen After Maple Approval
Maple Group Acquisition Corp., whose 12 members include banks and pension funds, received approvals yesterday for its takeover of TMX from Canada’s Competition Bureau and the Ontario Securities Commission. Photographer: Norm Betts/Bloomberg

TMX Group Inc., owner of the Toronto Stock Exchange, should seek takeovers of global competitors such as CBOE Holdings Inc. after its C$3.73 billion ($3.68 billion) sale to a Canadian investor group cleared its biggest regulatory hurdles, investor Thomas Caldwell said.

“You’re effectively the dominant exchange in Canada,” said Caldwell, chairman and chief executive officer of Toronto-based Caldwell Securities Ltd., and who owns shares in TMX and CBOE. “I think you can go hunting, whether it be a CBOE or taking a swing at London.”

Maple Group Acquisition Corp., whose 12 members include banks and pension funds, received approvals yesterday for its takeover of TMX from Canada’s Competition Bureau and the Ontario Securities Commission. The clearance moves a step closer to the creation of an exchange that would control more than 85 percent of Canada’s equities trading, the Montreal Exchange derivatives bourse and the country’s main securities clearing house.

“I see the humor” in TMX potentially acquiring London Stock Exchange Group Plc, Caldwell, 68, said yesterday in an interview at Bloomberg’s Toronto office. Caldwell was the second-largest owner in the New York Stock Exchange prior to its demutualization. Through Caldwell Securities and Urbana Corp., he has also owned stakes in TMX, CBOE and the Bombay Stock Exchange.

Scrapped Deal

TMX had an agreement last year to combine with London Stock Exchange, which failed to get shareholder support and was scrapped in June 2011. By October, TMX agreed to a transaction with Maple. Quebec’s regulator approved Maple’s takeover of the Canadian Depository for Securities Ltd. clearing house, late yesterday. British Columbia and Alberta securities regulators still need to rule on the deal.

TMX would be “wise to be spending their time looking at acquisitions,” said Ian Bandeen, former head of the Canadian National Stock Exchange, a competing bourse. “I wouldn’t be surprised if they start with a North American acquisition and then see what they can do from there, globally.”

Luc Bertrand, CEO of Maple Group, said pursuing takeovers “is definitely part of the thinking” for Maple, whether it’s targeting exchanges, risk-management firms, or data suppliers outside Canada.

“One of other main pillars or reasons for this transaction was to create this company that will allow it to seek opportunities outside Canada,” Bertrand said in a telephone interview. “It’s going to be a very powerful platform from which to do this.”

Chicago Experience

TMX owns a majority stake in the Boston Options Exchange LLC, which earlier this year won approval to become a U.S. securities exchange. The Canadian company already has 180 listings from U.S. businesses on its existing markets. BOX is owned by TMX and seven brokers including Citadel LLC and Interactive Brokers Group Inc.

TMX currently has a market value of C$3.6 billion. Chicago-based CBOE has a market capitalization of $2.45 billion, while LSE Group has a value of $4.24 billion. TMX fell 0.5 percent to C$48.15 at the close in Toronto, 3.7 percent below Maple’s C$50-a-share tender offer. TMX gained 15 percent this year, compared with an 8.2 percent increase for CBOE in New York and a 27 percent gain for LSE in London.

TMX CEO Thomas Kloet served on the boards of CBOE Futures Exchange Inc. and the Chicago Stock Exchange before joining TMX in 2008.

“Kloet’s worked in Chicago,” Caldwell said. “He understands the options business, he understands the futures business. So he can think now in those terms.”

Mike McHugh, a spokesman for CBOE, declined to comment on the possibility of a TMX approach when reached yesterday by e-mail during a U.S. holiday.

Clearing House

Maple, whose dozen members include Bank of Nova Scotia, Canada Pension Plan Investment Board and Manulife Financial Corp., proposes to buy TMX and integrate the exchange owner with the Canadian Depository clearing house and the bank-owned exchange owner Alpha Group.

Maple’s transaction will combine Canada’s main stock markets -- the Toronto Stock Exchange, TSX Venture Exchange and Alpha Exchange -- along with the Montreal Exchange derivatives bourse and the CDS securities clearing house under one company.

Maple plans initially to buy 70 percent to 80 percent of TMX shares for C$50 each in a tender offer that expires July 31.

Failed Bids

Maple’s deal for TMX comes after a string of unsuccessful global exchanges takeovers. Regulators scuttled more than $30 billion in exchange takeovers globally since Singapore Exchange Ltd. launched a bid for Australia’s ASX Ltd. in October 2010 amid public calls to maintain domestic control of stock trading, according to data compiled by Bloomberg. That includes Deutsche Boerse AG’s transaction with NYSE Euronext, and the hostile offer by Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. for the New York Stock Exchange owner.

“I don’t think the Maple Group has any ambitions to merge in any non-Canadian groups into TMX,” Cameron Webster, who helps manage C$200 million at Sandstone Asset Management Inc. in Calgary, said in a phone interview. “It’s been a highly profitable business from the get-go, so I think they’re focused on that as an attractive asset.”

Still, global exchanges such as TMX may seek the economies of scale that come with cross-border mergers, Webster said.

“It’s just a larger monopoly for the banks, that seems to be the decision that the competition bureau’s comfortable with,” he said. “The flipside of it is that there’s global pressure on exchanges to consolidate.”

Acquisition Hunt

Kloet said in a June 25 interview in London that he’s open to starting a U.S. bourse to attract listings from small- and medium-sized companies. The company is looking for acquisitions, Kloet said.

“Maple has never discouraged us from looking,” Kloet said, declining to be more specific. “We are keeping a sharp pencil and will look at a wide variety of things.”

William Brodsky, CBOE CEO, said June 8 that the company is looking for internal growth, though it would consider takeovers.

“There is value to consolidation because there are synergies, and so we we’ll be opportunistic, we’ll do what’s best for our shareholders,” he said.

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