TMX Keeps Options Open

Terry Flanagan

Regardless of the regulators’ decision on the Maple acquisition of TMX Group, the exchange operator will continue to push forward on its business plan of growth and reinvestment.

While TMX Group and its chief executive officer Tom Kloet are fully behind the company’s proposed acquisition by Maple Group, in the event the deal gets blocked, it would consider using some of its excess cash on hand to pursue M&A activity and reinvestment.

“We very much like the Maple proposal, and we’re in it with both feet,” said Kloet in a conference call with reporters. “With that said, if it doesn’t happen, there are fabulous opportunities available. I see a very strong future either way.”

Among its options would be to use its excess capital to grow the company, whether through M&A activity or through reinvestment. It has been making strategic investments and acquisitions in recent months, including buying Australia’s Razor Risk Technologies. It would also look to buy back shares and increase dividends to investors.

At the moment, TMX is limited in what it can do as far as using its nearly half a billion in excess capital, pursuant to its support agreement with Maple Group.

Over the past several months, the operator of the Toronto Stock Exchange and the Montreal Exchange has made several transactions, including acquiring ir2020, a stateside data analytics and customer relations management software provider. The company’s product offering will be integrated into TMX’s suite of products and services and be made available to all listed companies on the TSX and TSX Venture.

“A key strategic focus for TMX Group over the last several years has been to diversify its revenue streams,” Richard Simon, director of corporate development at TMX Group told Markets Media at the time of the ir2020 deal announcement. “There has been an increased emphasis on exchanges leveraging their core capabilities as a provider of technology solutions to the capital markets.”

In late December, TMX announced that it had taken a 16% minority stake in the Bermuda Stock Exchange, making it one of the largest shareholders of the offshore exchange. Prior to that, it acquired Sydney, Australia’s Razor Risk Technologies, which provides credit risk software to clearing houses, stock exchanges, financial institutions and brokerages.

TMX announced in November that it had entered into a support agreement with proposed suitor Maple Group regarding a deal for all of TMX’s outstanding shares, in a transaction valued at $3.8 billion. Under the deal, Maple has agreed to pay TMX a reverse termination fee of $39 million if the transaction fails due to regulatory concerns. TMX had previously been sour on the Maple bid, especially when the London Stock Exchange still had its takeover offer on the table.

The parties had hoped to close on the deal by early 2012. As part of the support agreement, Maple has extended its offer through Feb. 29, with the possibility of a further three-month extension possible if necessary to obtain the necessary regulatory approvals.

After the deal was initially announced, observers noted that having Canada’s largest banks and pension funds controlling the largest exchange and dark pool, together handling a substantial portion of domestic order flow, would be a concern for the Canadian trading landscape. CDS Clearing and Depository Services would also be under the control of the entity. This so-called vertical silo model of integration was key issue for regulators poring over the NYSE Euronext-Deutsche Borse merger.

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