TMX Rejects Latest Maple Proposal

by Glen Shapiro, LawAndTax-News.com, Washington

27 June 2011

TMX Group, the Canadian stock exchange operator, has rejected the latest takeover bid from the Maple consortium, and instead continues to push for the completion of its proposed merger with the London Stock Exchange Group (LSEG).

Maple and LSEG have been locked in a bidding war over TMX, with both upping their offers in the run up to a crucial TMX shareholder meeting on June 30. This latest rejection concerns the revised offer tabled by Maple on June 22.

The enhanced bid increased the prices the consortium was prepared to offer. Whereas previously TMX shares were to be exchanged for CAD33.52 in cash, plus 0.3016 of a share of Maple, Maple increased this to CAD40. According to the consortium, this values the deal at CAD3.8bn, and offers a 30% premium to the implied value of the LSEG plans. The earlier bid had valued the potential transaction at CAD3.6bn. In addition, Maple intends to increase the number of shares to be purchased for cash from 70% to 80%. In return, TMX shareholders would see their stake in Maple rise from 40% to 41.7%.

However, in spite of such sweeteners, the TMX Board of Directors has once again rejected the plans on the grounds of their inferiority to the LSEG offer. According to TMX, the bid does not constitute a superior proposal, and fails to provide the important financial and non-financial information which would be required to conclude otherwise. Instead, the Board continues to unanimously back to the LSEG proposal.

Elaborating, the Board said that Maple's offer must be evaluated in the context of a potential sale of control transaction, in contrast to the LSEG deal, which would be a merger of equals. In addition, the Maple bid is seen to raise conflict of interest issues, and the consortium has not stated how it would address them. Maple has also failed to demonstrate what steps it would take to obtain the necessary regulatory approvals, and has not offered to pay the required fees, were the regulators to turn the deal down. The future business plan is also criticised for containing inadequate information.

Commenting on the decision, Wayne Fox, Chair of the Board said: "The merger of TMX Group and LSEG provides our shareholders with the opportunity to participate in the creation of a new, international exchange group that is poised for growth. Shareholders, market participants and other stakeholders will benefit as we work to enhance the international competitiveness of our business and the Canadian capital markets we serve."

Shareholder ballots are currently being taken on the LSEG transaction, and a meeting of TMX shareholders is to take place on June 30.

Maple Group Acquisition Corporation was formed by a group of five pension funds, and four of Canada's leading banks in reaction to the proposed LSEG-TMX merger. The membership is 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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