06.01.2012
By Terry Flanagan

TMX-Maple Enters Home Straight

The year-long deal process between TMX Group and Maple appears to be entering its final stages.

Maple Group’s Luc Bertrand, who formerly served as chief executive of TMX and the Montreal Exchange, said that his group, a consortium of Canadian banks and funds, is in the final stages of securing regulatory approval for its $3.8 billion acquisition of the operator of the Toronto Stock Exchange.

“Our proposal now enjoys vast and solid support within the financial communities in Canada,” Bertrand said during a speech earlier this week.

Brendan Caldwell, president, director and chief executive of Toronto-based Caldwell Investment Management, said: “Looking at the stock price, I believe this deal is going through.” TMX’s stock was trading at about $47 at the time Caldwell spoke to Markets Media, and around $46 as of midday May 31. Maple’s offer is valued at $50 per share.

“My sincere expectation is that it goes through,” said Caldwell. “But whether they approve the deal or not approve the deal, they need to do it fairly quickly. To drag it out over a year and not approve it or impose conditions, that makes it impractical on a significant level. You have already seen around the world a host of exchange mergers that I am fairly confident would have been helpful to a lot of countries, but have been refused for no particular reason other than nationalism. But again I think the deal goes through.”

Maple on Wednesday extended its offer for TMX Group for the eighth time, from May 31 to July 31, subject to further extension, if necessary. Should everything go according to schedule, the deal is expected to close later this year.

Maple Group’s $3.8 billion acquisition of TMX Group is being jointly reviewed by Canada’s Competition Bureau and the Ontario Securities Commission (OSC). The Bureau is studying the draft terms and conditions proposed by the OSC. Bureau commissioner Melanie Aitken said that the OSC has “an expertise that we don’t, and we have a contribution to make from the perspective of what competitive consequences those transactions might have if they go ahead”.

The regulators in Canada have clearly been taking their review of the deal very seriously, as the deal could potentially have substantial and far-reaching effects on the Canadian market landscape.

The main concern for market participants regarding the TMX-Maple deal is its effect on competitive balance. Some are saying that there has not been substantial discussion on what it would mean to have one entity controlling some 80% of order flow in Canada. If approved, it would be going against the grain seen in other developed markets, where fragmentation has outpaced consolidation.

Maple’s acquisition of TMX is contingent on it also adding Alpha Group, operator of Canada’s second largest equities trading venue, and CDS, Canada’s central clearing house. Alpha recently made the move from alternative trading system to exchange, allowing it to better compete directly with TMX.

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