5 Min Read
TORONTO (Reuters) - The group bidding for the Canada's biggest stock exchange said on Tuesday it was trying to ease concerns about its $3.8 billion offer, but it is unclear if any concessions will appease regulators wary of endorsing a near monopoly.
The Maple Group of 13 Canadian financial institutions said it had spoken with regulators about stock trading and pricing at the Canadian Depository for Securities (CDS), which clears and settles all trades in Canada and which would be part of the new venture formed in the Maple bid for TMX Group (X.TO).
It extended its offer for TMX, operator of the Toronto Stock Exchange and several other markets, for a fourth time.
"We are in ongoing discussions with the regulators and have made numerous submissions to them, including recently submitting a proposed CDS pricing model and proposing remedies to address concerns regarding equities trading," said Luc Bertrand, vice-chairman of National Bank of Canada (NA.TO) and the Maple Group's key spokesman.
Canada's Competition Bureau, one of a raft of bodies that must approve the deal, repeated a statement from November that Maple's bid would require "a significant and material change to the competitive consequences" for it to be approved.
A spokesman said the bureau could not comment further while the review was pending.
"The only thing that we've said publicly is that we expressed those concerns on November 29. But until we've actually completed our review and we actually make an announcement, I really can't go any further than that," Greg Scott said.
Maple's bid, if it succeeds, would mean a single group controls some 85 percent of Canadian stock trading. Maple will own the TMX and the Alpha Group, which is the biggest competitor to Canada's premium bourse, in addition to the bank-run CDS clearing house.
TMX controls both the Toronto Stock Exchange and the small-cap TSX Venture Exchange.
Provincial regulators must also approve the takeover, and there is no formal deadline for the completion of all reviews. Maple's new February 29 deadline can always be extended.
But in a clear sign of investor doubts about whether the deal will go through, TMX shares have traded below Maple's C$50 a share bid price for months, The stock finished the day up 67 Canadian cents, or 1.6 percent, at C$42.87.
A key concern from regulators surrounds pricing and governance for CDS, which currently operates under a cost-recovery model that Maple would change to a for-profit model.
Alpha is part-owned by some of the same banks bidding for TMX, raising concern about Maple's heft in the market.
Maple spokesman Peter Block said the group's recent submissions on pricing for CDS should allay concerns raised by regulators and market participants.
"We certainly believe that it is possible to have a competitive, fair CDS that is still profitable in a for-profit model without it coming at the expense of market participants just paying more for the same thing. That's never been our intent," he said.
A study commissioned by CDS last year ranked its clearing and settlement pricing as No. 2 in global competitiveness behind the U.S. Depository Trust & Clearing Corp, which also operates on a cost-recovery basis.
In equity exchange clearing and settlement, CDS charges 2.4 U.S. cents per trade, before discounts, compared with 1 cent from the U.S. clearing corp and 78 cents from European central securities depositories, according to findings of an industry committee formed by the Investment Industry Regulatory Organization of Canada to advise its board on the issue.
Nick Thadaney, chief executive of the Canadian arm of research broker ITG, said the longer the deal remains in limbo the higher the chances that investor confidence in it will slip.
"I'm not going to read too much into this (extension) because I think if they want to get the deal done they have to keep doing extensions until they can organize themselves to get the appropriate approvals," he said.
"That being said, they don't seem to be moving all that quickly. That's just the optics."
Maple says it is doing all it can to win the necessary approvals, but it would not accept changes to deal terms that were of "material detriment" to its business plan.
Maple first proposed its TMX takeover in May 2011, and soon trumped a friendly offer from the London Stock Exchange (LSE.L). LSE abandoned its bid after it failed to win enough shareholder support, and the TMX board later agreed to back the Maple offer.
TMX Chief Executive Tom Kloet said the exchange operator continues to support the deal and would work closely with Maple to achieve the required approvals.
Additional reporting by Pav Jordan and Randall Palmer; Editing by Janet Guttsman