TORONTO A Canadian offer to buy the TMX Group (X.TO) may have the regulatory edge over a friendly London Stock Exchange (LSE.L) bid that has the pro-Canada lobby up in arms.
Lawyers and competition experts said neither bid faces insurmountable regulatory obstacles.
But they say current dynamics favour the Maple Group, the made-in-Canada consortium of banks, pension funds and financial services firms that's offering C$3.8 billion for TMX Group, the operator of Canada's biggest stock exchange.
TMX shareholders are weighing the two offers as exchanges around the world race to grow and broaden their geographic reach to fight off rivals and new market entrants.
But politics may be as important as business acumen in determining which bid regulators approve, after Canada's government unexpectedly vetoed a foreign takeover last year.
"The system seems a lot more politicized than it has ever been," said a prominent competition lawyer who is not connected to the case. "If I were advising on TMX-LSE I would be worried about that a great deal, because it's a bit more uncertain than it ever was before."
Seven months ago the government blocked BHP Billiton's (BHP.AX) $39 billion offer for Canada's Potash Corp (POT.TO), saying the Anglo-Australian miner's stewardship of the world's largest fertilizer maker would not benefit Canada.
LSE's bid for TMX faces review under the same Investment Canada Act that the government used to block the BHP offer. It was only the second foreign takeover to be overturned since the Act came in 1985.
The TMX offer is a far smaller deal, but the political hype is comparable.
BHP's bid for Potash triggered fierce opposition from Potash Corp's home province of Saskatchewan about a Canadian asset falling into foreign hands. And unashamedly pro-Canada Maple Group was born of opposition to the LSE bid.
"What helped seal the Potash fate was that you had a number of prominent Canadian business people that raised their voices," said Rick Powers, of the Rotman School of Management at the University of Toronto.
"Well, you've got a very similar block of voices coming up this time, from the banks and the financial institutions that have become involved in the Maple bid."
In LSE's favour, Canada will be careful that its decision does not look as though it is discouraging foreign investment, Powers said.
Even without the shadow of BHP-Potash, experts say the bid from the LSE -- which has gone to lengths to describe its offer as a merger of equals -- faces greater challenges.
"If you take a look at the LSE/TMX deal, there are just so many hurdles," said Powers, noting that the Maple bid must only get through Canada's federal Competition Bureau, while LSE's bid also needs a green light from provincial securities regulators in Ontario and Quebec.
Hearings from these provinces are scheduled for July.
Competition concerns on Maple centre around its plan to wrap in Alpha, Canada's largest alternative trading platform, and clearing house CDS, giving it more than 80 percent of the Canadian stock trading market.
But experts don't see that as a dealbreaker.
"The anti-competitive things that the Competition Act may be concerned about can be addressed by the people that are regulating them," said Justin Connidis, an expert on mergers and acquisition law at Canada's prestigious Queens University.
He said the bigger issues will be what conditions competition authorities impose on the Maple Group and if they are palatable under its business plan.
Bank of Canada Governor Mark Carney, in an interview published on Friday, said the central bank would seek assurances that TMX Group takeover did not impede its ability to regulate clearing of Canadian financial products.
Carney did not comment on the merits of either bid for TMX, but suggested that central bank regulatory oversight could be weakened if clearing arrangements move offshore.
TMX Group reiterated late Friday that it sees the LSE's offer as superior to the Maple Group's revised bid and urged shareholders to vote in favour of the trans-atlantic tie-up.
Shareholders vote on the LSE offer on June 30 and two-thirds of them must vote in favour of the deal for it to go ahead. It's not clear that they have the votes to win, given that Maple's bid is more generous in simple dollar terms.
(Editing by Janet Guttsman)