Canadian Business Backs TMX-LSE Merger

by Glen Shapiro, LawAndTax-News.com, New York

29 June 2011

The proposed merger of the Toronto and London Stock exchange operators has been backed by a key group of Canadian business representatives in an open letter which also slams the rival deal offered by the Maple consortium.

With just days to go before a crucial TMX Group shareholder meeting, the letter offers strong endorsement of the TMX-London Stock Exchange Group (LSEG) transaction. The deal is compared with the bid tabled by the Maple group of Canadian banks and pension funds, and the latter offer is heavily criticised. The list of businessmen party to the letter includes fund managers, capital market investors and financial planners.

The TMX-LSEG merger is praised for its ability to protect "Canadian regulatory sovereignty", champion Canadian executive management, and maintain both competition and a level playing field. On the other hand, the letter argues that Maple "has proposed the creation of a national monopoly in which our Canadian exchanges would be owned and managed by many of their most powerful participants, and thus would be burdened by significant conflicts".

The Maple proposal faces "significant regulatory hurdles", but, were these overcome, the consortium would be in possession of nearly 90% of all equities trading in Canada, according to the letter. This would create "a small and highly connected group of financial institutions", which would own and control Canadian exchanges and capital markets. The net effect is that such exchanges and capital markets would be ill-served, and market competition would be "virtually eliminate[d]".

Furthermore, the letter notes, "Maple's highly leveraged, tightly-held TMX would have significant control over virtually every aspect of access to financing in Canada. We believe this will negatively impact fees, enforcement, regulation, innovation and transparency." Ultimately, it concludes: "Such concentration of ownership is not in the interests of our capital markets and economy."

The full list of signatories is as follows:

• John L. Albright, CFA, Founder and Managing Partner, JLA Ventures & Blackberry Partners Fund;
• Paul Allison, Chairman and CEO, Raymond James Ltd.;
• Robert Blanchard, President, Haywood Securities Inc.;
• Eric Bushell, Chief Investment Officer, Signature Global Advisors;
• Thomas Caldwell, Chairman and CEO, Caldwell Securities Ltd.;
• Rowland Fleming, retired CEO, TSX and Corporate Director;
• William Holland, Executive Chairman, CI Financial Corp.;
• Gordon Keep, Executive Vice President, Fiore Financial;
• John MacPhail, President, Union Securities Ltd.;
• John Tognetti, Chairman, Haywood Securities Inc.; and
• Hari Varshney, President, Varshney Capital Corporation;

The TMX Board of Directors rejected last week the latest of Maple's bids, on the grounds that it did not constitute a superior proposal to the LSEG transaction, nor could it reasonably be expected to do so in future. LSEG recently upped its offer, adding a special cash dividend to the deal. Under the newest proposals, the special cash dividend would be worth 84.1 pence per share for LSEG shareholders, and CAD4 per share for TMX. Based on share capital as at June 20, this sweetener would be worth GBP415.8m, or CAD660.3m (USD665m).

The balloting of TMX shareholders concludes on June 28, and the shareholder meeting will take place on June 30, where shareholder judgement on the LSEG deal will be passed.

Maple Group Acquisition Corporation was formed by a group of five pension funds, and four of Canada's leading banks in reaction to the LSEG proposals. The membership was originally as follows: Alberta Investment Management Corporation; Caisse de dépôt et placement du Québec; Canada Pension Plan Investment Board; CIBC World Markets Inc.; Fonds de solidarité des travailleurs du Québec; National Bank Financial Inc.; Ontario Teachers' Pension Plan Board; Scotia Capital Inc., and TD Securities Inc. Maple recently added Desjardins Financial Group, Dundee Capital Markets, GMP Capital Inc. and Manulife Financial to its list of investors.

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