Monday, 30 May 2011

New TMX takeover proposal eyes foreign expansion



(Reuters) - A proposal by a group of Canadian banks and pension funds to take over the operator of the Toronto Stock Exchange offers cost savings and opportunities for international growth, the group said on Monday.

A consortium calling itself the Maple Group Acquisition Corp is proposing a C$3.6 billion ($3.7 billion) deal to buy TMX Group, aiming to derail a $3 billion friendly bid for the exchange operator by the London Stock Exchange.

Shares of TMX were up 6.01 percent at C$44.26 early on Monday afternoon on the Toronto Stock Exchange.

"It presents a clear path to creating additional value by optimizing the balance sheet, margin expansion, improved multiple potential and the ability to pursue international growth opportunities," said Luc Bertrand, the vice-chairman of National Bank of Canada, one of the banks involved in the proposal.

"There is huge value creation opportunity here, so at the end of the day the re-rating or increased valuation of the combined group will certainly allow the group to consider opportunities elsewhere," he said.

Maple officials told a conference call, however, that the group is not eyeing specific international expansion targets, and said it was premature to discuss whether it would be interested in the New York Stock Exchange, for example.

LSE and TMX also touted their deal, announced in February, as creating a more diversified and international company. The LSE-TMX plan has raised concerns in Canada about a national institution falling under control of a foreign-based company.

Maple Group said its members started informal discussions of an alternative bid around the time they started making public objections about the loss of Canadian control in the LSE-TMX proposal.

Maple said its proposal would not require approval under the Investment Canada Act, which says that foreign takeovers of Canadian companies must be of "net benefit" to Canada.

Under the terms of Maple Group's proposal, no single shareholder -- which include four of Canada's biggest banks and five pension funds -- would own more than 10 percent of TMX, consistent with current regulatory requirements.

The members of the Maple consortium include: Canadian Imperial Bank of Commerce, National Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Alberta Investment Management Corporation, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, and Fonds de solidarite des travailleurs du Quebec.

COMPETITION BUREAU

To expand TMX's operating scope, Maple hopes to combine it with alternative trading system Alpha Group, which is already owned by Canada's big banks, and clearing hub Clearing and Depository Services Inc.

Such a combination would require approval from the country's Competition Bureau. Under that review, Maple would have to prove that efficiencies outweigh competitive concerns.

Alpha has quickly eaten into TMX's market share since its inception in 2007 and is currently applying for exchange status.

The Maple consortium, which has expressed confidence that they will be able to combine Alpha and CDS under the proposal, said such a deal is not comparable to the Nasdaq OMX Group Inc and IntercontinentalExchange's bid for NYSE.

Nasdaq and ICE ditched their $11 billion offer for NYSE Euronext on Monday citing antitrust concerns, highlighting the fragility of dealmaking in the closely regulated exchanges industry as pressure to consolidate mounts.

"They are very, very different. First, the primary antitrust concerns around Nasdaq/NYSE appear to have been around listings. Alpha does not currently offer listings," Bertrand said.

Also, unlike NYSE and Nasdaq, which are globally recognized exchanges, Alpha is an ATS limited to Canada, he said.

The Maple Group's proposal is not conditional on the acquisition of CDS and Alpha, but it is conditional on receiving regulatory approval for the acquisitions.

($1=$0.97 Canadian)

(Reporting by Pav Jordan and Solarina Ho; editing by Peter Galloway)

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