TORONTO A group of Canadian banks and pension funds are hoping their C$3.6 billion offer for TMX Group will keep the nation's largest stock market from falling into foreign hands, but questions remained on Sunday whether that is reason enough to succeed.
The C$48 per share offer for TMX from a consortium calling itself the Maple Group Acquisition Corp topped a $3 billion (1 billion pound) friendly bid for the exchange operator from the London Stock Exchange.
Maple Group includes banks that have opposed the LSE deal, arguing it would put control of TMX into foreign hands and threaten Toronto's growing status as a world financial centre.
But experts said the Maple Group's bid appeared to have the sole purpose of blocking the LSE deal from going through and questions remained about the rationale of such a move.
"The onus is on them to show us why they are doing this," said Alison Crosthwait, director of global trading strategy at Instinet. "They are going to have to make a case for doing this other than just blocking the LSE bid."
The offer puts the LSE in a tight spot, forcing it to fend off the rival bid as it seeks to rejuvenate its centuries-old business.
If LSE boss Xavier Rolet were to better his terms, it would undermine claims the LSE and TMX are equal merger partners in their deal, something Rolet has stressed in the past to soothe nationalist nerves in Canada.
Ontario-based TMX has said its board is analyzing the Maple proposal but it is continuing to pursue the regulatory permits required for the LSE deal. Besides the Toronto Stock Exchange, TMX also owns TSX Venture Exchange for small-cap stocks and the Montreal Exchange for derivatives trading.
Maple said its proposal also contemplates a combination of TMX Group with alternative trading system Alpha Group and Canada's clearing hub Clearing and Depository Services Inc.
Alpha was founded by Canada's biggest banks and the Canadian Pension Plan Investment Board. But on May 6, Alpha Chief Executive Jos Schmitt raised questions about a potential deal with TMX.
"I haven't done any analysis of that nature that would make me even wonder if it is something that is realistic or not .... I think we need to see what is realistic, what are the facts, what is making sense," Schmitt said at the time.
Under the terms of its proposal, Maple Group would acquire all shares of TMX for $48 in cash per TMX share or one common share of Maple per TMX share, in each case subject to proration.
The maximum cash payable under the proposal is C$2.5 billion and the maximum number of Maple shares issuable is 22.5 million.
On a prorated basis, Maple said each TMX Group share would be exchanged for C$33.52 in cash plus 0.3016 of a Maple share. It said the proposal represented a 24 percent premium to the implied value of the LSE's offer.
On completion of the transaction, shareholders of TMX Group would own about 40 percent of Maple's outstanding shares. Pension fund investors would own about 35 percent and the bank-owned investment dealers would own 25 percent.
No shareholder of Maple would own more than 10 percent of Maple's total shares outstanding, Maple said.
'MADE IN CANADA' SOLUTION
The all-Canadian bid is seen facing fewer regulatory hurdles than the one from London, which must pass regulatory muster at federal and provincial levels and which has come under fire from the banks, mining companies and politicians.
The Maple proposal would have to be approved by the Canadian Competition Bureau, but would not face review under the net benefit to Canada test that foreign acquirers face.
"The Competition Bureau has its requirements, but I expect the worse that could happen here is that they would demand certain conditions be put in place," said a lawyer from one of Canada's largest corporate law firms who has been watching the situation. He asked to remain anonymous because it was against his company's policy to comment on such matters.
"I would expect this 'made in Canada' solution to be approved."
Neither the acquisition of TMX Group, nor a subsequent combination of Alpha or CDS, requires approval under the Investment Canada Act, Maple Group said.
"We believe our offer constitutes a superior proposal under which shareholders would receive cash, plus the opportunity to continue to participate in the company's ongoing growth," Maple spokesman Luc Bertrand, vice-chairman of National Bank Financial Group, said in a statement on Sunday.
Banks in the Maple group include CIBC World Markets, National Bank Financial, Scotia Capital and TD Securities Inc. The same banks are advising on the deal.
Maple also consists of five pension funds -- including Alberta Investment Management Corporation, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Fonds de solidarite des travailleurs du Quebec (F.T.Q.) and Ontario Teachers' Pension Plan Board.