Regulatory silence unsettles TMX Group investors

Thu Jan 26, 2012 7:19pm GMT

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* Maple seen extending Jan. 31 bid deadline

* Source says more regulatory clarity possible in coming weeks

* Key issues for regulators are Alpha, CDS, governance

* TMX shares at around C$42, 16 pct below share offer

By Pav Jordan and Jennifer Kwan

TORONTO, Jan 26 (Reuters) - A weeks-long silence over the regulatory fate of Maple's C$3.8 billion ($3.80 billion) bid for TMX Group is sapping investor confidence in the deal, which would put Canada's dominant financial markets operator under the control of its big banks and pension funds.

More than a half-year after Maple Group offered to buy TMX (X.TO) for C$50 a share, the stock is trading at just C$42, and some investors are shedding their investments for fear that regulators will reject the proposal as anti-competitive.

"My sense is that, with the radio silence that’s going on, that there might be some challenges or something breaking loose," said Thomas Caldwell, chairman of Caldwell Financial Ltd and a TMX shareholder. "I think there have been some folks lightening up a bit of stock."

If regulators reject the deal, the shares could drop as much as C$8, he said, while it could rise by the same amount if the deal wins approval.

Critics say the Maple plan, which must run a gauntlet of provincial and federal regulatory authorities, would create an unfair exchange monopoly. It would put investors at the mercy of the 13 major banks, pension funds and other financial institutions that comprise the Maple Group.

The deal would put the TMX's Toronto Stock Exchange and the TSX Venture Exchange for small-cap stocks under the same roof as Alpha Group, TMX's largest competitor. The plan is contingent on the consortium's full acquisition of Alpha, now owned by some of the institutions that make up Maple.

Another sticking point is governance of the company and whether the board will properly represent the interests of market players outside of the major bank broker-dealers. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Timeline on TMX takeover saga [ID:nN1E7AT081] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

LONG, CONVOLUTED PROCESS

Maple plans to extend its bid for a fourth time in coming days as it awaits greater clarity from the Competition Bureau, said a source close to the deal. The current deadline is Jan. 31.

"We will announce our intentions in the coming days," said Maple spokesman Peter Block, without elaborating.

Maple and the TMX are working closely with regulators, but the process is so convoluted and multi-layered that it is still too early to predict an outcome, said the source, who was not authorized to speak on the record.

"It is a complicated file with complicated issues and numerous stakeholders," said the source "I would hope that over the course of the next few weeks that we could have greater visibility on where we are going to end up."

Maple would also put the exchanges under the same umbrella as Canadian Depository for Securities, which clears and settles all trades in Canada. Critics are concerned about plans to change the clearing house into a for-profit entity.

The Maple bid, announced in June, was initially hostile, countering a $3 billion offer from the London Stock Exchange (LSE.L) that opponents said would put Canadian capital markets under foreign control.

The bids, which came as part of a wave of global exchange consolidation, drove TMX stock to a year-high of C$45.69 just before the LSE opted to back away.

"50-50" CHANCE

First hints from regulators have been inauspicious for Maple and its supporters. In November, the federal Competition Bureau expressed serious concerns about the deal, driving TMX stock down about 3 percent.

The proposal also needs the approval of securities commissions in four provinces, including Quebec and Ontario.

"It seems the market is careful not to put too much weight on the offer lest it turn out not to be actionable," said Ed Ditmire, an analyst with Macquarie Capital in New York.

Greg Eckel, a shareholder and senior vice president at Morgan Meighen & Associates, said questions about the valuation of Alpha and CDS are also injecting some element of uncertainty.

"It looks to me as if at best I would give it a 50-50," he said, in guessing the chances of approval.

($1 = 0.9996 Canadian dollars)

(Editing by Frank McGurty)

((pav.jordan@reuters.com)(416 941 8163)(Reuters Messaging: pawel.jordan.reuters.com@reuters.net)) Keywords: TMX/MAPLE

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