Canadian exchange group TMX has entered a support agreement with Maple Group Acquisition Corporation (Maple) that would see TMX bought by Maple under a two-step transaction valued at approximately C$3.8 billion.
The TMX Group board cited the opportunity to create an integrated exchange and clearing group, as well as cost savings and cross margining benefits to market participants arising from the integration of Canadian clearer CDS into the new, merged company.
“This is a unique opportunity to create an integrated exchange and clearing group that can provide efficiencies and new capabilities for the benefit of all market participants,” said Tom Kloet, CEO, TMX Group. “The investment in our company by leading Canadian pension funds and financial institutions will contribute to the success of our business and will strengthen our ability to compete and grow in the highly competitive global exchange sector.”
The move is a major departure for TMX, which had previously resisted all of Maple’s advances.
Earlier this year, TMX was the subject of a planned merger with the London Stock Exchange Group (LSEG). However, that deal collapsed when it became clear that it was unlikely to secure sufficient support from TMX shareholders. The existence of a counter-bid from Maple, which offered TMX shareholders better terms, was widely seen as a contributory factor to the failure of the LSEG deal.
At the time, market observers suggested derailing the LSEG deal to keep control of Canada’s exchange in Canadian hands was a primary motive of the Maple project – making the continuation of the Maple bid something of a surprise.
Maple also intends to buy Canadian alternative trading system Alpha Group, including its dark pool, Alpha IntraSpread. The move would create a single enlarged entity that would account for around 85% of Canada’s market share, according to figures provided by Thomson Reuters.
However, such a concentration of liquidity in the hands of a single market operator has raised questions from some market participants, with Alison Crosthwaite at agency broker Instinet raising concerns in October that the deal might lead to increased trading costs and monopolistic behaviour.
Maple is backed by a consortium of 13 Canadian financial institutions, including 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.
Canadian regulators are currently reviewing the Maple transaction, with a final decision from the country’s provincial regulators in Ontario, Quebec, Alberta and British Columbia expected in early 2012.