A brace of sweetened offers has failed to sway shareholders in the race to buy the operator of Canada's biggest stock exchange, and time is running out ahead of a June 30 shareholder vote.
Shareholders said the London Stock Exchange must raise its friendly bid for TMX Group significantly before they will back the proposal, which now includes a welcome cash element in the shape of a special dividend.
But antitrust concerns could derail the second offer, a now-sweetened proposal from a consortium of Canadian banks, pension funds and financial services firms.
From a game perspective or a strategy perspective, they're now basically where they were before, said Alison Crosthwait, director of global trading strategy at Instinet, which runs Canada's second biggest alternative trading system.
She added: What surprises me is that, increasingly, I'm hearing a little bit of 'Perhaps, neither of the bids will happen...' So there's still risk in this.
With only a week before the vote, shareholders who talked to Reuters mainly favor Maple's home-grown bid, but the outcome is far from certain, particularly on the regulatory front. Some shareholders also say the LSE has not done enough to seal the deal.
The battle for TMX Group is part of a global wave of consolidation by exchanges seeking to expand geographically and in terms of the products they offer.
LSE Chief Executive Xavier Rolet wants to beef up the London exchange to fight off rivals, nimble new market entrants and predators. He says LSE's merger of equals with TMX will create a transatlantic powerhouse in mining and energy equities.
The offer, if approved by shareholders from both companies at separate June 30 meetings, must still be approved by Canadian Industry Minister Christian Paradis, who has to decided if the deal is of net benefit to Canada.
The 13-member Maple Group consortium says the LSE proposal would leave a key Canadian asset in foreign hands.
In back-to-back sweeteners on Wednesday, the LSE added a cash component to its all-stock bid in the shape of dividends to shareholders of both exchanges, bringing the bid's value to just under C$49 a share.
Maple responded hours later by raising its cash-and-stock offer to C$50 a share, from C$48.
I told (the LSE) they'd better bump the price or get off the deck, said Richard Fogler, a large TMX shareholder who said he met with the LSE on Wednesday.
Fogler, president of Kingwest & Company investment firm in Toronto, added: If the LSE wants to win, they have to change their price.
London's bid value fluctuates along with its share price and analysts note LSE's stock would go down if its bid wins.
ISS, a proxy advisory firm with influential shareholder clients, recommended the LSE proposal and said it would yield cost savings, new issuer listings and beef up the group's global position.
Maple reacted to the ISS recommendation by noting that, despite favoring the LSE bid, the firm recognized Maple's offer provided greater value than the LSE takeover.
Nevertheless, market experts believe LSE's Rolet has played his last card. Given he has to win two thirds of the Canadian investor vote next week, one banker said the prospects of a successful LSE-TMX deal did not look good.
These things are always decided on the basis of price, said Thomas Caldwell, chairman of Caldwell Securities. Most traders will take one in the hand versus two in the bush.
TMX stock closed up 2.4 percent in Toronto at C$45.30. LSE shares finished at 957.5 pence.
Maple wants to wrap Alpha, Canada's largest alternative trading platform, and clearing house CDS, both of them largely owned by its members, into the new exchange.
That would give Maple more than 80 percent of Canadian stock trading and make the deal subject to antitrust review.
Analysts said the LSE's special dividend -- 84.1 pence per LSE share and C$4.00 per TMX share -- added a welcome cash element to the bid. But it did not raise the offer and also meant the company would have to borrow to pay for it.
The LSE dividend has nothing to do with the value of the deal, rather the dividend means only cash for shareholders and a more leveraged business. The tax benefit is the only way the dividend makes the offer more attractive, said Numis Securities analyst James Hamilton.
Chris Damas, an independent analyst and TMX shareholder does not believe the LSE has the firepower in its balance sheet to up the bid again.
The LSE still has an opportunity to bring in someone with deeper pockets and I really think they want this. They need an external capital at this point, said Damas, but added that it would be hard to find a strategic investor to add capital.
Michael Smedley, a TMX shareholder and chief executive of Morgan Meighen & Associates, said LSE's best strategy might be a bid for time while it regroups.
It would seem incongruous that there would be a positive vote for the merging on the 30th, because if it were, it would end the process, said Smedley.
A spokeswoman for the LSE declined to comment on the latest developments. Analysts have long said the robust LSE share price reflects market expectations that its bid for TMX will fail, turning the LSE from buyer into takeover target.
For now, market watchers say exchanges considering a move will likely watch how the drama plays out from the sidelines.
I think it's a low probability that another exchange would want to stick it's nose in there right now. It's complicated with a lot of moving parts and a lot of players involved at the end of the day, said Chris Allen, New York-based exchanges analyst at Evercore Partners.
(Writing by Pav Jordan, additional reporting by Solarina Ho and Jonathan Spicer; editing by Janet Guttsman and Rob Wilson)