Canada exchange operator backs $3.8 billion buyout bid

Mon Oct 31, 2011 2:44pm EDT
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By Euan Rocha

TORONTO (Reuters) - TMX Group has embraced a Canadian consortium's C$3.8 billion ($3.8 billion) takeover offer, bolstering the chances shareholders will endorse a once-hostile deal that would put the country's largest exchange under the same roof as its largest rival.

TMX, the operator of the Toronto Stock Exchange, urged investors to vote in favor of the bid from Maple Group, a collective of 13 banks, pension funds and other financial institutions.

TMX's decision to drop its neutral stance comes four months after the collapse of its effort to combine with the London Stock Exchange. That deal, part of an industry-wide wave of consolidation, raised fears that Canada's capital markets would fall under foreign control and Toronto would lose its status as a financial center.

But Maple's proposal, which was initially rejected by TMX, has raised objections of its own because it would put the TSE under the same ownership as Alpha Group, the biggest alternative exchange. The new company would control more than 80 percent of Canadian stock trading, a position that could allow it to raise trading fees for customers.

While it is far from clear whether the federal Competition Bureau will bless the deal, TMX could have put up a formidable roadblock by refusing to embrace its suitors.

"I do not think TMX Group's support of the deal necessarily makes regulatory approval easier," said Darryl Levitt a lawyer with Macleod Dixon in Toronto. Even so, "it is much more likely that all relevant information necessary to make a determination in favor of the transaction will be provided," he said.

The current offer price and deal structure won't change, the companies said. But Maple has agreed to the appointment of an independent chairman and other concessions related to corporate governance.

"The most substantial factor in the new agreement is Maple's acceptance to an independent chair, which would have otherwise been investor group leader Luc Bertrand," said Chris Damas, a TMX shareholder and president of BCMI Research.   Continued...

<p>A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007. REUTERS/Mark Blinch</p>