Maple in softer sell for TMX after LSE defeat

TORONTO Thu Jun 30, 2011 8:47pm BST

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TORONTO (Reuters) - After seeing its trans-atlantic rival go down to defeat, the Maple Group consortium of Canadian banks and pension funds wants to shift its proposed takeover of TMX Group (X.TO) onto a friendlier plane.

"Nobody is looking at this and saying 'Okay, now let's pack up our tent and go home'," a source with the 13-member consortium said a day after the London Stock Exchange's (LSE.L) friendly takeover bid for Toronto Stock Exchange operator TMX collapsed in the face of Maple's richer, hostile challenge.

"We would like to turn this friendly. We'd like to figure out how we get the TMX to say, 'You know, we want to do this with you,' because we are in a much easier position to move on the regulatory fronts with a party that wants to do a deal."

Created in May in the back of a taxi by bankers who wanted to block the trans-atlantic merger plans of the LSE and TMX, Maple is grappling with identity issues now that it has been successful in scuttling the rival London deal.

The group, which includes four of Canada's largest banks, North America's largest insurer, and five of Canada's biggest pension funds, said it has every intention of taking over TMX and consolidating the country's exchanges and trading systems.

"Yes, (we were created) in response to the LSE transaction. However, that being said, this makes sense on a number of different fronts," said the source.

Another source with the group said Maple was committed to getting the deal done and it would concentrate now on working with regulators.

TMX and the LSE abandoned plans on Wednesday for their C$3.6 billion (2.3 billion pounds) combination after proxy votes made it clear they would not win enough shareholder support.

Maple's unashamedly nationalistic proposal, worth C$3.8 billion, pledges to keep TMX, which it calls a vital domestic asset, in Canadian hands.

TMX told a shareholders meeting it isn't ready to say how it will respond to Maple's offer.

"We're not in any of those discussions right now, but the reality is that one never knows what will happen," TMX Chief Executive Tom Kloet told journalists after the meeting.

MAKING THE REGULATORS HAPPY

Maple's bid faces significant antitrust concerns because it would create a system in which major market players run the exchanges where they do their deals.

The chief concern centers on Maple's plan to fold Alpha Group, Canada's biggest alternative trading system, into the post-takeover TMX. The combination would give the TMX-Maple entity more than 80 percent of Canada's stock-trading market.

Analysts are now scratching their heads over what regulators may demand Maple do to make the merger acceptable.

"Alpha will certainly create problems, but let's face it, the consolidation of trading entities around the world works in their favour," said Rick Powers, a professor at the University of Toronto's Rotman School of Management.

"The competition bureau will certainly put controls in there, and require them to do certain things if they are going to approve it, but I think that's all negotiable."

Both of the sources at Maple said the group can waive its condition of acquiring Alpha to close the deal, and deal with the alternative exchange later. A significant number of Maple Group investors are also investors in Alpha, and the cross-ownership gives the group leverage even as it raises competition concerns.

One of the group's next steps may be to bring Canada's biggest bank, Royal Bank of Canada (RY.TO), into the fold, now that its advisory role with the LSE is over.

"We would be quite happy if they wanted to participate in the Maple consortium ... because at the end of the day the more participants that we can have, the stronger the bid is," the first Maple source said.

RBC and Bank of Montreal (BMO.TO) had been the only two of Canada's big six banks left out when Maple members teamed up to defeat the LSE-TMX alliance, sidelined because their capital markets teams were advising the deal.

BMO is still advising TMX management and cannot join Maple unless and until the deal becomes a friendly merger.

"Given our advisory role with TMX, it would be inappropriate for us to comment," said Bank of Montreal spokesman Paul Deegan.

Another Maple source said the consortium was designed to be able to accommodate the banks, but discussions won't begin with RBC until after everyone takes a breather over the weekend, which begins with the Canada Day national holiday on Friday.

"Nobody's going anywhere. TMX has ... to reflect a bit, and then Friday is a holiday. We'll pick things up again on Monday."

(Additional reporting by Pav Jordan, Trish Nixon, Euan Rocha and Solarina Ho; editing by Janet Guttsman)

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