TMX-Maple Deal Hanging On

Terry Flanagan

While Maple Group’s offer for TMX has been extended another month, the likelihood of the deal going through remains uncertain.

“Maple and TMX Group are committed to the transaction and are working diligently to obtain the required regulatory approvals,” the companies said in a joint statement. They continue to hold “ongoing discussions with the regulators and have made numerous submissions to them, including a proposed CDS pricing model, and have proposed remedies to address concerns regarding equities trading”.

Caisse de dépôt et placement du Québec chief executive Michael Sabia recently let his sentiments be known. The Caisse pension fund is part of the Canadian consortium of banks and funds that make up Maple. Last week, Sabia said he was “quite optimistic” that the takeover of TMX Group by Maple Group would get approved.

Brendan Caldwell, president, director and chief executive of Toronto-based Caldwell Investment Management, told Markets Media: “The regulators will take a long hard look at the deal and there may need to be concessions, but I don’t think any province will block the deal. It’s better for the status quo than having the disruption of a foreign takeover, and better for the capital markets for an internal takeover rather than fighting amongst themselves.”

Maple most recently extended its takeover offer for TMX, Canada’s largest exchange operator, for an additional month to March 30 after it was due to expire at the end of this month. The parties had hoped to close the deal by early 2012 but there is the possibility of further extensions if necessary to obtain 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 a key issue for European regulators poring over the blocked NYSE Euronext-Deutsche Borse merger.

TMX announced in November that it had entered into a support agreement with suitor Maple Group regarding a deal for all of TMX’s outstanding shares, in a transaction valued at $3.73 billion. Under the deal, Maple 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.

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.

Among its options would be to use its excess capital to grow the company, whether through M&A activity or through reinvestment. TMX has been making strategic investments and acquisitions in recent months, including buying Australian risk manager Razor Risk Technologies, as well as ir2020, a stateside data analytics and customer relations management software provider. It also took a 16% minority stake in the Bermuda Stock Exchange, making it one of the largest shareholders of the offshore exchange. It will look to buy back shares and increase dividends to investors as well.

At the moment, TMX is limited in what it can do as far as using its near $500 million in excess capital, pursuant to its support agreement with Maple Group.

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