May 3, 2012 / 2:18 PM / 5 years ago

Maple agrees to OSC terms on TMX takeover

TORONTO (Reuters) - Maple Group said on Thursday it would accept a regulator's conditions on its C$3.8 billion ($3.84 billion) bid for TMX Group (X.TO), likely paving the way for the elusive takeover of the operator of the Toronto Stock Exchange to go ahead.

The consortium of Canada's largest banks, insurers and pension plans said that if the terms from the Ontario Securities Commission survive a 30-day comment period, it would accept them, allowing Maple to win control of the Toronto exchange in a deal that will give it some 85 percent of Canadian stock trades.

"We believe that the orders published today set out a balanced framework that ensures strong regulatory oversight and accountability following the Maple transaction," TMX CEO Tom Kloet said in a joint statement with Maple.

In a 164-page document, the OSC made clear it was concerned about the transparency of the new exchange and was seeking controls on governance, including restrictions on the make-up of the board of directors and limits on ownership to ensure the new stock exchange operator acts in the public interest.

"The Commission has thoroughly reviewed the regulatory issues raised by Maple's proposal and developed measures necessary to ensure that the public interest is protected," OSC chair Howard Wetston said in a statement.

"Public consultation has been a fundamental part of our review process and we will carefully consider the further input we receive on these orders when making our final determination."

The Canadian Competition Bureau, an independent federal law-enforcement agency, said the OSC's draft rules might "substantially" mitigate its competition concerns on the Maple bid and it would now seek industry reaction to the OSC terms.

Billionaire investor Stephen Jarislowsky said the market saw the latest news as moving the deal closer to completion.

"I think that the thing is getting more momentum," said Jarislowsky, who is chief executive of Jarislowsky Fraser Ltd.

"I think everybody is now intent on doing something and is feeling it has to be done in a relatively rapid time, and not let it drag much longer."

TMX shares rose just over 2 percent to C$47.50, bringing them closer to Maple's C$50 bid price than at any time since the bid was launched last May.

MADE-IN-CANADA

Maple's banks, insurers and pension plans launched their complicated bid almost a year ago to counter a friendly offer by the London Stock Exchange (LSE.L) for TMX.

Wrapping itself in the Maple Leaf flag whose name it carried, Maple had argued that a made-in-Canada solution was in the country's best interest in the face of the LSE bid.

A back-and-forth bidding war and heightened rhetoric about nationalism eventually scuttled the LSE proposal, leaving Maple as the sole bidder for Canada's largest stock exchange operator -- but facing massive conflict-of-interest concerns.

The deal still needs formal approval from the Competition Bureau as well as from the securities commissions in the provinces of British Columbia and Alberta, which are set to publish notices soon.

Quebec's Autorité des marchés financiers, which has already said it intends to approve the deal, on Thursday issued a separate notice and promised additional consultations about Maple's desire to wrap the Canadian Depository for Securities stock clearing system into the new entity.

The OSC's terms and conditions follow hearings held late last year, and the regulator wants the new trading entity to issue annual reports on how it respects the public interest.

The OSC also wants diverse board representation at the new entity, and a commitment that no entity can own more than 10 percent of Maple voting shares without the regulator's prior approval.

The draft regulations will be open for 30 days of public comment.

Maple Group extended its offer for a seventh time earlier this week pending regulatory approval.

As part of its proposal, Maple wants to fold under TMX's wing Alpha Group, TMX's biggest domestic competitor in stock trading, as well as CDS, which clears and settles all trades in Canada.

But the fact that Alpha and TMX control some 85 percent of all stock trades in Canada raised concerns that the deal would give too much power to a single market and clearing operator controlled by Canada's big financial institutions, including TD Securities Inc and Caisse de depot et placement du Quebec.

The OSC draft rules cover the operation of TMX and CDS, but not Alpha. But the regulator said if Maple completes its proposed takeover of Alpha, the regulation order for that exchange would mirror the one for the TMX-CDS entity.

($1=$0.99 Canadian)

Reporting by Jennifer Kwan and Euan Rocha, writing by Andrea Hopkins and Cameron French; Editing by Janet Guttsman; and Peter Galloway

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