TMX-LSEG Deal Collapses
Monday, July 04, 2011

The merger deal between the Toronto and London stock exchange operators has been "terminated", leaving the way open for potential talks with rival bidder Maple.

Ahead of a planned shareholder vote at the TMX Group on the proposed transaction with the London Stock Exchange Group (LSEG), both parties have agreed to scrap the deal. The decision to do so was made when it became clear that the plans would not receive the two-thirds majority required to pass the shareholder hurdle.

According to TMX, a majority of votes cast by proxy before June 28 were in favour of the transaction, but the crucial two-thirds needed would not have been reached. Therefore, the formal shareholder vote, scheduled for June 30, was abandoned once the agreement was shelved on June 29.

TMX will now have to pay LSEG CAD10m (USD10.4m) in expenses, and, were Maple's offer accepted within 12 months, TMX would have to foot a further CAD29m fee.

The proposal's failure to meet the required threshold came in spite of a recent revision to the proposed deal, when LSEG significantly upped its offer. Under the newest plans, LSEG would have added a special cash dividend to the transaction, worth 84.1 pence per share for LSEG shareholders, and CAD4 per share at TMX. Based on share capital as at June 20, this sweetener would have been worth GBP415.8m, or CAD660.3m.

In turn, the Maple Acquisition Corporation, formed in reaction to the original LSEG offer being tabled, altered the terms of its offer. This bid remains available to the TMX Board, in spite of its many rejections of the terms put forward by Maple. Whereas previously TMX shares were to be exchanged for CAD33.52 in cash, plus 0.3016 of a share of Maple, Maple increased this to CAD40 on June 22. According to the consortium, this values the deal at CAD3.8bn, and offers a 30% premium to the implied value of the LSE plans, before they were axed. The earlier bid had valued the potential transaction at CAD3.6bn.

Speaking on a conference call, Tom Kloet, CEO of TMX, stressed that the majority of shareholders had supported LSEG's bid, seeing the value, potential and benefits of the transaction. He would not, however, confirm how many shareholders exactly voted in favour, and said that, as the deal had been terminated, these figures would not be released.

Kloet continued to praise the value of the failed deal. He said that it was a clear and well thought out plan, and offered strong protection for Canada and the regulatory oversight of its markets. However, he emphasized his respect for the shareholders' decision, and said setting a two-thirds threshold imposed a rightfully high standard. In addition, Kloet argued that TMX is a strong business, showing improvement, proving innovative and adding new products to its remit. He remains confident in TMX's business plan.

However, Kloet did concede that, going forward, the Board would evaluate its options, including the Maple offer. In doing so, it will consider above all shareholder interests and the long-term success of Canada's capital markets.

Reacting to the announcement and speaking on behalf of Maple's investors, Luc Bertrand said the consortium was very pleased with the support its offer has received from TMX shareholders. He added, "we hope we may now engage in a positive dialogue with the TMX Group Board".

Maple Group Acquisition Corporation was formed by a group of five pension funds, and four of Canada's leading banks. The membership was originally 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.