February 8, 2012 / 11:23 AM / 6 years ago

UPDATE 4-TMX profit slides as Canada equity markets slow

* Q4 EPS C$0.70 vs C$0.90 year-ago

* Q4 revenue slips 7 pct to C$161.7 mln

* Adjusted EPS C$0.74 vs consensus of C$0.84

* TMX shares down 10 Canadian cents at C$41.80 (Adds CEO, analyst comments)

By Jennifer Kwan

Feb 8 (Reuters) - TMX Group, the Canadian exchange operator awaiting regulatory approval for its proposed $3.8 billion takeover, on Wednesday said quarterly results tumbled as economic uncertainty hit its listings and equity trading businesses.

TMX, which owns the Toronto Stock Exchange and the TSX Venture Exchange, said the 21 percent decline in its fourth-quarter profit also reflected higher costs linked to Maple Group Acquisition Corp’s proposed deal.

“It is clear that the growing global economic uncertainty weighed on our financial results,” Chief Executive Tom Kloet said during a conference call with analysts, noting a 25 percent drop in overall stock trading volumes in Canada for the quarter.

Kloet said combined equity trading volumes on its stock exchanges for the period were much lower than a year earlier. The small-cap TSX Venture was especially hit hard, with volumes tumbling 50 percent in the quarter versus the same period in 2010.

Another key focus for investors and analysts is the proposed Maple bid, given growing doubts that the bid will pass muster with Canada’s Competition Bureau .

Shares of TMX, which dipped 0.4 percent after the results, are now trading at C$41.74, well below Maple’s C$50 offer price. That suggests investors have little confidence it will succeed.

Asked whether there is a plan B if the deal falls apart, Kloet repeated his support for the proposal.

“I very much like the Maple proposal. I’m in the Maple proposal, if you will, with both feet so there should be no mistake about whether or not I think it’s good for the company and good for the capital markets,” he said.

“That said, if it doesn’t happen there are fabulous opportunities for this institution and we have a very solid business plan ... I see a very strong future for the institution either way.”

Executives on the call said TMX might consider potential acquisitions and share buybacks if regulators shoot down the Maple proposal.

Maple, comprised of 13 Canadian banks, pension funds and other financial companies, extended its bid offer deadline to Feb. 29.

The consortium has said it would only go ahead with the deal if authorities allow it to buy Alpha Group, TMX’s biggest domestic rival, as well as the Canadian Depository for Securities, which clears and settles trades in the country. Maple wants to fold the two entities into an enlarged TMX.


Net income at TMX, which also owns the Montreal Exchange for derivatives, fell to C$52.7 million, or 70 Canadian cents a share, from C$67 million, or 90 Canadian cents, a year earlier.

Excluding one-time merger-related costs and other items, the company reported earnings of 74 Canadian cents a share, well below the analysts’ average estimate of 84 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue fell 7 percent to C$161.7 million, with cash markets revenue in the quarter down 29 percent and issuer services revenue down by 17 percent.

Ed Ditmire, an analyst at Macquarie Capital, said he expected the revenue miss to have muted impact on TMX’s shares. In a note to clients, he said investors are mostly focused on the dynamics of the Maple deal as they wait to see if it wins regulatory approvals. Partially offsetting the decreased revenue was strength in TMX’s derivatives business, both from the Montreal Exchange and Boston Options Exchange, the company said.

TMX said costs in the quarter also rose including a pre-tax costs of C$5.7 million related to the Maple takeover offer, as well as charges related to deploy new technologies and add resources to generate growth. ($1 = $0.9949 Canadian) (Additional reporting by Euan Rocha in Toronto and Aftab Ahmed in Bangalore; Editing by)

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