The London Stock Exchange added cash payouts to its friendly bid for the operator of the Toronto Stock Exchange on Wednesday, raising the value to $4.1 billion and topping a $3.8 billion hostile offer from a Canadian consortium.
Just a week before TMX Group shareholders vote on its proposal, the LSE added some C$660 million ($680 million) to its bid in the form of special dividends of C$4 per TMX share and 84.1 pence per ordinary share of the LSE, in an effort to woo shareholders from both companies.
But it's not clear if the sweetener will be enough for TMX shareholders, who are also looking at a cash-and-stock offer of about C$48 a share, from the Maple Group of Canadian banks, pension funds and financial services firms.
Alison Crosthwait, director of global trading strategy at Instinet, which operates Chi-X, Canada's second-largest alternative trading system, valued the new LSE proposal at C$48.94 a share.
They bested the Maple deal by almost a dollar, she said.
TMX stock, halted pending the announcement, rose about 1 percent to close at C$44.25, even as some shareholders questioned if the new offer was high enough.
I think it's inadequate, said Richard Fogler, a shareholder and president of investment firm Kingwest & Co. The LSE, by raising the bid, they've basically publicly stated that they don't have the votes to win.
TMX said it was sticking to plans for a shareholder vote on the LSE offer on June 30, putting pressure on Maple to react.
Maple had no immediate comment. But Thomas Caldwell, whose firm Caldwell Securities holds TMX shares, expects the consortium to sweeten its offer.
This is a close-run deal, he said. I think the other side are going to come back with something more, something different and something more clarified.
TMX also formally rejected the bid from Maple. It said Maple failed to provide proof that its offer was superior and the bid would result in significantly increased leverage for the exchange operator.
TMX Chief Executive Tom Kloet said in an interview the decision to sweeten the friendly bid showed the companies' confidence in the deal and reflected discussions with TMX shareholders.
I thought we should show the confidence we feel in the combined businesses, he said, calling the dividend rate change the right thing to do.
LONDON GETS A 55 PERCENT STAKE
Under the London offer, TMX shareholders will receive 2.9963 LSE Group shares for each TMX share, leaving LSE shareholders with control of 55 percent of the new company. and TMX shareholders with 45 percent.
But some shareholders said the promise of special dividends just gives away future value.
The special dividend looks nice but ... it's really borrowing from Paul to pay Peter, said Chris Damas, an independent analyst and TMX shareholder who plans to vote against the LSE proposal.
A London banker who advises financial services companies but is not involved in the deal described the move as classic M&A, and predicted LSE shares would open lower on Thursday.
LSE shares closed the day flat in London, at 957.35 pence.
Both takeover proposals will face regulatory hurdles.
The LSE offer needs approval from provincial regulators and from federal Industry Minister Christian Paradis, who must determine if the offer is of net benefit to Canada.
The LSE and TMX say they plan to create a transatlantic partnership with a strong position in mining and resource firms. Opponents say it puts a crucial Canadian asset in foreign hands.
The Maple deal, billed as a made-in-Canada solution, would have to pass anti-trust muster because its combination would give the new firm control of more than 80 percent of Canadian stock trades.
(Additional reporting by Andrea Hopkins, Solarina Ho, Euan Rocha and Victoria Howley; editing by Janet Guttsman)