03.16.2012
By Terry Flanagan

TMX-Maple Inches Closer to Approval

Two of Canada’s regulatory bodies have hinted that their approval of the acquisition of TMX by Maple is imminent.

“This goes against the grain of this string of failed exchange deals that we’ve had recently,” an exchange executive with knowledge of the deal told Markets Media. “This will be a great marriage.”

TMX Group, the operator of the Toronto Stock Exchange, and suitor Maple Group, a consortium of Canadian banks and pension funds, announced in a joint statement that the Ontario Securities Commission and the Autorité des marchés financiers, the financial regulatory body in Québec, have each given signs that the deal’s approval process is moving along, after months without any significant new developments.

The OSC has informed Maple that it has requested that its staff develop draft recognition orders with detailed terms and conditions. The OSC will publish the draft orders for a 30-day public comment period prior to making a final decision on the recognition orders.

The AMF announced that it intends to approve Maple’s proposed integrated acquisition transaction, and has indicated that it is satisfied that the conditions that it intends to impose on Maple and its subsidiaries will adequately address the issues raised previously by the AMF.

Both developments come after both regulators thoroughly reviewed the terms of the transaction.

After the deal was initially announced last May, observers noted that having Canada’s largest banks and pension funds controlling the nation’s largest exchange, as well as Alpha, the nation’s largest dark pool, which together handle 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 regulators poring over the NYSE Euronext-Deutsche Börse merger.

Maple last month extended its takeover offer for TMX for an additional month to March 30 from February 29. The parties had hoped to close on the deal by early 2012. There is the possibility of further extensions if necessary to obtain the necessary regulatory approvals.

Caisse de Depot et Placement du Quebec chief executive officer Michael Sabia recently let his sentiments be known. Sabia recently noted that he was “quite optimistic” that the takeover of TMX by Maple Group will get approved. The Caisse pension fund, which manages public pension plans in Quebec, is part of Maple.

“The regulators will take a good, long, hard look at the deal and there may need to be concessions, but I don’t think any province will block the deal,” Brendan Caldwell, president, director and chief executive of Caldwell Investment Management, told Markets Media. “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.”

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 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.

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. It has been making strategic investments and acquisitions in recent months, including buying Australia’s 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 nearly half a billion of Canadian dollars in excess capital, pursuant to its support agreement with Maple Group.

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