July 12, 2012 / 12:06 AM / 5 years ago

Canadian exchange deal wins final clearance

5 Min Read

TORONTO (Reuters) - The C$3.8 billion ($3.72 billion) acquisition of Canada's TMX Group cleared its final regulatory hurdles on Wednesday, allowing a financial consortium to take control of all of the country's major securities exchanges and related businesses.

Concluding a drawn-out review process, regulators in the provinces of British Columbia and Alberta approved Maple Group's acquisition of TMX - the operator of the Toronto Stock Exchange, TSX Venture Exchange for small-capitalization stocks, and the Montreal Exchange for derivatives, among others.

Under its broad proposal, the consortium of Canadian banks, insurers and pension funds will also acquire TMX's biggest rival, Alpha Group, as well as the Canadian Depository for Securities, which clears and settles all stock trades in the country.

"We are happy that the deal is going to be concluded and that we will have a strong national stock exchange," said Thomas Caldwell, chairman of Caldwell Financial, which owns shares of TMX.

Regulators in the provinces of Ontario and Quebec, and the federal Competition Bureau, approved the deal earlier in July.

Canada has no national securities regulator, which means Maple needed the blessings of multiple watchdogs for its C$50-a-share tender offer to succeed.

Shares of TMX Group closed up 20 Canadian cents at C$48.85 on Wednesday.

"Following completion of the transaction, TMX Group will be a stronger organization, able to introduce new innovation and efficiency to the Canadian market, and to grow, compete and win more effectively on the global stage," said TMX Chief Executive Tom Kloet in a statement.

The approvals came soon after news that TMX is in talks to buy U.S. stock market operator Direct Edge Holdings LLC.

Complex Deal

TMX agreed to back Maple's bid last October, after initially rejecting an unsolicited offer that the banks and their partners put together to scupper an earlier offer by the London Stock Exchange.

"We would've preferred to see London to this deal. But we prefer to see this deal to no deal," said Caldwell, who initially opposed the Maple initiative.

Maple said its proposal was the best way to keep Canadian exchanges out of foreign hands, even as a wave of foreign firms launched bids for global rivals in the exchanges sector. Many of the proposed deals have since fallen apart in the face of strong opposition from regulators.

In February, the European Union blocked a tie-up between Deutsche Boerse and NYSE Euronext that would have created the world's biggest stock exchange. It said the deal would have given the combined entity a stranglehold over the European futures market.

Similar concerns led the U.S. Department of Justice to foil an IntercontinentalExchange and Nasdaq bid for NYSE Euronext.

Canadian regulators never had to rule on the LSE offer for TMX, because the London exchange pulled its bid once it became clear that it would fail to win adequate shareholder support.

Maple, in its statement on Wednesday, urged TMX shareholders to tender shares in favor of its offer that is set to expire on July 31. Maple's offer requires at least 70 percent of TMX's shares to be deposited in favor of the offer.

Competitive Concerns

The fact that TMX and Alpha control about 85 percent of all stock trades in Canada had raised antitrust concerns within the country. But the Competition Bureau said the Ontario Securities Commission's rules that will govern the new combined entity had mitigated its concerns.

"It's a very positive thing for Canada. I think it's a positive thing for our economy. I would like a wider ownership distribution. But it's not a perfect world," said Caldwell.

The bureau has reserved the right to revisit its decision if any issues arise within a year of the deal's closing, a common stipulation on deals of such complexity.

The British Columbia and Alberta regulators oversee the TSX Venture Exchange for small-cap companies.

The British Columbia regulator said its review identified some risks to that exchange, but its rules would protect the interests of both the exchange and small independent dealers that support financing for early stage businesses.

Its recognition orders, which will govern the market, require at least 25 percent of TMX's board to have expertise in the Venture market. Any changes to the Venture's rules or fees will also need to be approved by the provincial regulator.

The Alberta Securities Commission said its recognition orders governing the Venture were substantially the same as those of its British Columbia counterpart.

Reporting by Jennifer Kwan and Euan Rocha; Editing by Frank McGurty

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