Canadian institutions counter LSE bid for TMX

A Canadian consortium of five pension funds and four investment banks has announced a C$3.6 billion (US$3.69 billion) counter bid for the operator of the Toronto Stock Exchange which could prevent its planned merger with the London Stock Exchange Group.
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A Canadian consortium of five pension funds and four investment banks has announced a C$3.6 billion (US$3.69 billion) counter bid for the operator of the Toronto Stock Exchange which could prevent its planned merger with the London Stock Exchange Group (LSEG).

The LSEG and TMX Group unveiled plans to create a “merger of equals” on 9 February that would give shareholders C$38.89 per share in an all-stock deal and give the LSEG a 55% stake in the merged entity as well as eight of the 15 board directorships. The Canadian consortium, Maple Group Acquisition Corporation, has offered shareholders C$48 per share in a cash-and-equity transaction that would merge TMX with the Alpha Group alternative trading system and guarantee Canadian majority ownership. According to Bloomberg, TMX shares closed at C$41.75 on 13 May.

Participants in the consortium include Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets, Fonds de solidarité des travailleurs du Québec, National Bank Financial, Ontario Teachers’ Pension Plan Board, Scotia Capital and TD Securities. According to a press release issued on 15 May by the consortium, a successful bid would result in existing shareholders of the TMX Group owning approximately 40% of Maple’s outstanding shares with the consortium's pension fund investors and bank-owned investment dealers owning approximately 35% and 25% respectively. No shareholder of Maple would own more than 10% of total shares outstanding.

Speaking on behalf of Maple’s investors, Luc Bertrand, vice-chairman of National Bank Financial, said, “As like-minded investors, we believe there is an opportunity to create significant value by capitalising on TMX’s strengths to build a stronger integrated exchange and clearing group – and by doing so, to secure the future growth and ongoing integrity of the Canadian capital markets. We believe our offer constitutes a superior proposal under which shareholders would receive cash, plus the opportunity to continue to participate in the company’s ongoing growth. We welcome the opportunity to work with TMX’s board and management to capture the benefits of our proposal for the company and all of its stakeholders.” Maple's release also asserted that its proposed transaction would preserve Canadian governance, decision-making and regulatory oversight, while positioning the company to pursue strategic opportunities internationally.

In a statement issued on 14 May, noting that TMX had informed LSEG that it had received an alternative offer, the London-based group said it remained committed to the merger and the terms laid out in February. “LSEG believes the proposed merger offers compelling financial, strategic and operational benefits for shareholders, the full breadth of market participants, listed companies of all sizes, investors and other stakeholders.

The outward-looking, highly international transatlantic group, jointly headquartered in London and Toronto, will be a global leader in capital formation, liquidity and exchange technology,” the statement read.

The LSEG and TMX initiated the application process for regulatory approval of the deal with Canadian federal and provincial authorities on 29 April.

Maple said it would preserve TMX Group’s existing corporate governance structure, with at least half of directors being independent, at least 25% resident in Quebec and a minimum of 25% having expertise in the Canadian public venture market. The consortium also committed to maintaining the group's current management and staffing levels.

In addition, Maple said it intended to integrate TMX's existing businesses with Alpha Group, a Canadian alternative trading system, and CDS Clearing and Depository Services, Canada’s national securities depository. As well as operating the Toronto Stock Exchange, TMX Group also runs the derivatives-focused Montreal Exchange, TSX Venture Exchange, Natural Gas Exchange, Boston Options Exchange, inter-dealer broker Shorcan and investor relations firm Equicom.

Maple said the proposed combination would create “an integrated trading and clearing exchange for equities, bonds, energy products and derivatives in both exchange-traded and over-the-counter markets” that would “dramatically broaden TMX Group’s business activities, generate substantial growth opportunities, and create significant synergies (including cost rationalisation)”. A number of consortium members already have significant equity stakes in Alpha.