TMX Rejects Maple Takeover Bid

by Glen Shapiro, LawAndTax-News.com, Washington

25 May 2011

A merger deal between the operators of the London and Toronto Stock Exchanges looks set to go ahead, with the TMX Group rejecting a rival acquisition proposal from the Canadian business consortium Maple.

Announced on May 14, the bid, by a newly formed collective calling itself the Maple Group Acquisition Corporation, was marketed on the basis of its alleged superiority over an existing proposal providing for the merger of TMX and the London Stock Exchange Group (LSEG). TMX pledged at the time to evaluate the advance, and, in the meantime, continue in its efforts to secure the regulatory approval needed for its LSEG deal, this latter commitment perhaps indicating where opinion lay at that stage.

Now, the TMX Board of Directors has concluded that Maple's overture does not constitute a superior proposal, nor could it reasonably be expected to do so in future. In particular, the financial consideration of the proposal is judged inadequate, given that it proposes a change of control of TMX, and the increased leverage suggested could constrain the Group's ability to execute and implement strategic opportunities, without offering offsetting business benefits.

Maple's provision of insufficient information on future business plans and strategy, domestically and internationally, is cited, along with the failure to identify a senior management team responsible for such plans. Significant execution risk, associated with the conditions for acquiring regulatory approval for a simultaneous acquisition of Alpha Group and CDS, and a lack of information on the values of these entities and the terms under which they would be combined with TMX, also make the list of TMX's complaints. In addition, the proposal is alleged to have contained no compensation for TMX were regulatory approval not secured.

Composed of five pension funds, and four of Canada's leading banks, the membership of Maple 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.. The offer document had claimed that a deal with Maple would boost TMX's international competitiveness, be beneficial to shareholders, preserve Canadian governance, decision-making and regulatory oversight of TMX and thus, above all, secure Canadian interests.

Under such a deal, existing shareholders of the TMX Group would have owned 40% of Maple's outstanding shares, with pension fund investors taking 35%, and bank-owned investment dealers 25%. No shareholder would have owned more than 10% of these shares. Each TMX share would have been exchanged for CAD33.52 in cash, plus 0.3016 of a share of Maple. The potential trump card was the claim that, in effectively valuing TMX at CAD3.2bn, Maple's deal represented a 24% premium to the implied value of the LSE deal, and a 20% premium to the volume weighted average price of TMX Group shares in the 20 days prior to the offer's announcement.

Nonetheless, despite such hopes, TMX clearly remains committed to its existing LSEG deal. Wayne Fox, chair of the Board of Directors, said "The Board supports TMX Group's proposed merger with LSEG to form a globally competitive yet domestically focused exchange group with strong opportunities for growth. The Board's view is that the merger with LSEG continues to be in the best interests of TMX Group and its shareholders and stakeholders."

Speaking on behalf of Maple, Luc Bertrand, Vice Chairman of National Bank Financial, said the decision was disappointing, with TMX failing to see the "clear" superiority of the consortium's proposal. Maple, he said, will consider its next move in due course.

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