LSE Ups TMX Bid In The Face Of Maple Competition
Friday, June 24, 2011

The bidding war over the Canadian stock exchange operator TMX Group has intensified, with both the London Stock Exchange Group (LSEG) and the Maple consortium upping the terms of their offers in an attempt to win over shareholders.

The LSEG deal, first announced in February, is the preferred merger, with TMX actively pressing its shareholders to vote in favour of it at a crucial June 30 meeting. On the other hand, the bid offered by the Maple group of Canadian banks and pension funds, has been rejected on many occasions by TMX, on the grounds of its alleged inferiority to the LSEG proposals. Maple has resubmitted its bid several times, and encouraged TMX shareholders to reject the LSEG deal already on the table.

Now, in a move designed to enhance its deal's attractiveness, on June 22, LSEG announced proposed special cash dividends for LSEG and TMX shareholders, along with a revised progressive dividend policy for the merged business.

Under the plans, the special cash dividend would be worth 84.1 pence per share for LSEG shareholders, and CAD4 per share for TMX. Based on share capital as at June 20, this sweetener would be worth GBP415.8m, or CAD660.3m (USD665m). The new dividend policy would see shareholders receive an initial annual dividend per share that LSEG says will be at least equal to the current annual dividend per TMX share, divided by the merger ratio.

Commenting on the announcement Chris Gibson-Smith, Chairman of LSEG and future deputy Chairman of LTMX, stated: “This is great news for shareholders. This special dividend makes the LSEG/TMX Group merger even more compelling. Shareholders will benefit from cash upfront, plus the opportunity to participate in the ownership of an international exchange leader. Our new progressive dividend policy demonstrates our belief in the exciting growth opportunities and future for LTMX as an innovative and competitive international business.”

Xavier Rolet, Chief Executive Officer of LSEG and future Chief Executive Officer of LTMX, added: “Both financially robust, both with enviable balance sheets, the merger of LSEG and TMX Group will create a low leverage, highly-flexible and ambitious merged business. The special dividend and our new dividend policy reflect the strong performance of our organisations and signal our absolute commitment to delivering both growth and shareholder value.”

In addition, LSEG again explained what it believes to be the benefits of its proposed merger. According to the operator, the deal will create an international exchange leader, which will be the world's number one listing venue, by listing numbers, and act as a market leader. It estimates revenue benefits of GBP35m/CAD56m within the first three years, increasing to GBP100m/CAD160m by the end of the fifth year.

LSEG has also strongly dismissed Maple's offer. Allegedly, the proposal is neither strategically nor financially compelling, and raises considerable uncertainty, along with serious competition law issues.

For its part, based on an earlier version of the Maple bid, the TMX Board of Directors has concluded that the offer has not addressed previously expressed deficiencies. In line with its earlier rejections, the Board has again reiterated that the offer does not offer a superior proposal to the LSEG merger, nor could it reasonably be expected to do so in future. TMX argues that the offer is financially inadequate, and that Maple has failed to address significant competition law issues. In addition, the offer is felt to cause conflict of interest issues which will be of concern to securities regulators. Moreover, it is seen to present an execution risk and result in significant indebtedness.

Wayne Fox, Chair of the Board, explained: “The Board takes its fiduciary responsibility extremely seriously and took the time to conduct a careful analysis of the current Maple Offer. The Board determined that the current Maple Offer is not, and could not reasonably be expected to result in, a superior proposal to our agreed merger with LSEG. The Board reiterated its recommendation of the merger with LSEG to form a new international company with strong Canadian leadership in both senior management and the Board.”

His comments were echoed by Thomas Kloet, Chief Executive Officer of TMX Group, who said: “The Board and senior management believe that the agreed merger with LSEG will deliver the most value for shareholders, market participants and a broad array of stakeholders. This Special Dividend demonstrates the confidence TMX Group and LSEG have in the combined business. Participating in a globally positioned exchange group is the right path forward for our company and our shareholders and will enhance the competitiveness of Canada's capital markets in an increasingly global financial marketplace.”

Nonetheless, Maple appears determined to push ahead with its planned takeover. On June 22, it too announced an enhanced offer, upping the prices it is prepared to offer. Whereas previously TMX shares were to be exchanged for CAD33.52 in cash, plus 0.3016 of a share of Maple, Maple has now increased this to CAD40. According to the consortium, this values the deal at CAD3.8bn, and offers a 30% premium to the implied value of the LSE plans. The earlier bid had valued the potential transaction at CAD3.6bn.

In addition, Maple intends to increase the number of shares to be purchased for cash from 70% to 80%. In return, TMX shareholders would see their stake in Maple rise from 40% to 41.7%.

Speaking on behalf of Maple’s investors, Luc Bertrand said, “Maple’s offer continues to provide far greater value and certainty than the LSE take-over, as well as a stronger, more valuable and more sustainable business model for the TMX Group going forward. We believe the choice is clear. TMX Group shareholders must understand that if the LSE take-over proceeds, the opportunity to consider our superior offer will be lost. The only choice for shareholders who want to preserve the ability to consider our superior offer is to vote against the LSE take-over.”

He continued, “The LSE proposes to return a bit of cash to shareholders but hasn’t changed the fundamental value of its offer. There is no doubt that our offer is superior to the LSE take-over and we continue to be prepared to engage in discussions with the TMX Board. We remain confident in our ability to obtain all necessary regulatory approvals and, in the context of a TMX Board supported transaction, would be prepared to negotiate a reverse break fee payable to TMX Group in the event the transaction does not proceed as a result of Maple not receiving Competition Bureau approvals to subsequently combine TMX Group with Alpha and CDS. In contrast, the LSE take-over continues to be conditional upon the willingness of regulators in Ontario and Quebec to abandon a key Canadian public interest protection limiting ownership of the TMX Group to 10% for any one investor, as well as upon approval under the Investment Canada Act.”

Maple Group Acquisition Corporation was formed by a group of five pension funds, and four of Canada's leading banks in reaction to TMX's existing merger deal with the London Stock Exchange Group (LSEG). The membership was as follows: Alberta Investment Management Corporation; Caisse de dépôt et placement du Québec; Canada Pension Plan Investment Board; CIBC World Markets Inc.; Fonds de solidarité des travailleurs du Québec; National Bank Financial Inc.; Ontario Teachers' Pension Plan Board; Scotia Capital Inc., and TD Securities Inc. Maple recently added Desjardins Financial Group, Dundee Capital Markets, GMP Capital Inc. and Manulife Financial to its list of investors.

TMX shareholders are due to vote on the LSEG merger on June 30.