With just two weeks to go before a referendum on the future of Canada's TMX Group , operator of the Toronto Stock Exchange, shareholder Chris Damas is finally climbing off the fence.

The once-undecided investor is now leaning toward a C$3.7 billion ($3.8 billion), all-Canadian takeover bid by Maple Group Acquisition Corp and away from London Stock Exchange Group's C$3.5 billion friendly transaction.

Like some other previously undecided's polled by Reuters this week, Damas appears to have been swayed by the circular that Maple released on Monday, formally launching its bid. The Barrie, Ontario-based shareholder said the circular from the consortium of Canadian banks, pension funds and other financial firms has cleared up many of his questions about the offer.

Damas said he still wants a sweetener before he makes a final decision in favor of Maple, just as he said in an earlier Reuters poll. But overall, he now likes what he sees in Maple.

I really think this is a good deal for Canada -- we should have control over a sensitive asset like the stock exchange, Damas said. But the Maple Group is being stingy with their offer, he added, saying he would not accept it as it stands.

A source with knowledge of Maple's strategy said the group currently has no plans to sweeten its bid.

Supporters like the sizable cash component in Maple's bid, compared with the all-stock London offer. They are also worried that a foreign takeover of the country's main equities market would marginalize Canada's financial sector.

Of the 11 TMX shareholders who talked to Reuters this week, five preferred Maple, four were undecided, one would rather the exchange remain independent, while seeing Maple's bid as having the best chance of going through. One was leaning toward LSE.

The shareholders surveyed hold roughly 5 percent of TMX's widely held shares. Maple Group members hold around 6 percent.

A similar Reuters poll of nine top investors, released last week, found four undecided shareholders, two in favor of Maple, two who supported LSE and one who wanted no change. One Maple supporter from the original poll was not available for the current sample.


The Maple consortium aims to buy 70 percent of TMX's shares for C$48 a share in cash, with the remaining TMX shares exchanged for Maple shares. On average, a holder of 100 TMX shares would receive C$3,360 in cash and 30 Maple shares.

Current TMX shareholders would end up owning 40 percent of the post-takeover entity, TMX-Maple, and Maple investors would hold 60 percent. Under a LSE-TMX deal, LSE shareholders would own 55 percent and TMX shareholders would own 45 percent.

Maple's promise to maintain the exchange's dividend has also been a selling point.

TMX, led by American Tom Kloet, had initially dismissed the Maple proposal as inferior to the LSE offer based on a lack of specifics regarding its structure, but this week it said it would reassess the bid as it continues to pursue the LSE deal.

The public face of Maple is Montreal banker Luc Bertrand. He ran the Montreal Exchange before it merged with the Toronto Stock Exchange to become TMX and was a front-runner for the top job at TMX, but was passed over in favor of Kloet, a former chief of the Singapore Exchange.


One factor behind Maple's plan that had earlier deterred TMX shareholders was the unknown price the group would pay to bring Alpha, the country's main alternative trading center, and CDS, an equities clearing hub, under the TMX umbrella.

In its formal circular, Maple gave a ballpark range of C$310 million to C$340 million for the two companies, based on comparisons with similar assets. It plans to form a special committee to reach a fair value.

Both the Maple bid and the LSE bid could win favor with investors but still get tripped up in the regulatory process.

If TMX shareholders vote in favor of the LSE deal on June 30, the deal would still have to pass muster with the Canadian government under the Investment Canada Act, which says big foreign takeovers must carry a net benefit to Canada.

LSE plans to create a transatlantic exchange operator that's big on mining, energy and other resource listings. It said a combined exchange would save costs, gain global exposure and diversify revenue sources, but Canadian regulators may balk at a deal that puts London in control.

Maple's plan to combine TMX and Alpha -- which is owned by many of the banks and pension funds behind the consortium -- would give TMX control of some 80 percent of Canadian stock trading by volume, raising red flags on the antitrust front.

The Maple bid is a very strong bid, said Thomas Caldwell, a high-profile and vocal TMX shareholder. It has the sensitivity of nationalism working for it. The problem is it's still a bid by the biggest traders on the exchange.

Make no mistake, the members of that cartel will have influence, and we suspect undue influence.


Like Damas, many shareholders who spoke with Reuters said they would like to see a sweetened offer for TMX.

Richard Fogler, president of Kingwest & Company, said he is undecided as to which way he will vote on June 30.

If the LSE wants to win the bid they will have to raise the price, he said.

The LSE could raise its chances of success without any additional expense to itself by increasing its leverage and paying out some cash to shareholders, said Ed Ditmire, an analyst at Macquarie Research.

TMX-LSE in particular, it's not clear that they've yet put their best hand on the table in that they haven't exercised their financial capacity like the Maple bid has to deliver cash to shareholders, he said.

He said Maple is already leveraged to the gills, so it would be more difficult for it to add a sweetener.

The TMX drama is one of several exchange deals in the spotlight this year as operators seek consolidation in the face of rising competition.

The common thread is a desire by exchanges to boost their global footprint and broaden their offerings, but some TMX shareholders worry that goal could come at a high cost.

I have consistently favored the Canadian offer on the basis of better value allowing Canadian investors still to participate in a great cash machine, said Michael Smedley, chief executive of Morgan Meighen & Associates.

($1=$0.98 Canadian)

(Additional reporting by Pav Jordan, Euan Rocha, Solarina Ho; editing by Frank McGurty)