The London and Toronto stock exchanges abandoned plans for a C$3.6 billion ($3.7 billion) tie-up on Wednesday, leaving both in play in a world already facing a wave of exchange consolidation.
The failed bid from the London Stock Exchange, opens the door to a hostile C$3.8 billion offer for TMX Group from Canada's Maple Group consortium, a made-in-Canada alternative to a takeover that would have put a big domestic asset in foreign hands.
It also turns the spotlight on the LSE as a target as exchanges consolidate to grow and broaden geographic reach, and to fight off rivals and new market entrants.
Nasdaq OMX Group, smarting from its own failure in the United States to buy the New York Stock Exchange parent NYSE Euronext, could be a contender for an alternative transatlantic combination with the LSE.
While the failed deal probably puts an end to TMX's M&A ambitions, other exchange operators will likely continue to look for partners. This reinforces my belief that we should expect more mergers, not less, said Ed Ditmire, New York based analyst for Macquarie Securities.
The failure of the TMX bid, a high-profile deal that was months in the making, follows Singapore Exchange Ltd.'s scuttled bid for Australia's ASX Ltd in the latest sign that nationalism and pride are frustrating cross-border deals for highly symbolic capital markets.
And it's a black eye for LSE Chief Executive Xavier Rolet, who banked his reputation on sealing the deal.
Rolet was to have led a LSE-TMX exchange group, which would have been a heavyweight global player and No. 1 in listing energy and mining companies.
But the support he got from TMX management and board wasn't enough to overcome opposition from within Canada's tight-knit banking sector.
Four of Canada's biggest banks were the lead players in the bid from Maple, a consortium that also included pension funds and financial services firms. Canada's other two big banks were advisers to the LSE proposal.
NOT ENOUGH VOTES
In brief statements issued one day before a shareholder vote, the two exchanges said they realized from an early tally of proxy votes that TMX shareholders would not give them the two-thirds majority needed to approve their friendly deal.
TMX Group, operator of the Toronto Stock Exchange, said it would now review opportunities, including the Maple offer.
LSE and TMX were both in positions where they weren't quite big enough or diverse and fast-growing enough to control their own destiny, said Justin Schack, managing director of market structure analysis at New York-based agency brokerage Rosenblatt Securities.
They did the best deal that they probably could. Now that that's not going to happen TMX has Maple to deal with, while LSE is out on its own again, and there aren't many partners out there where they could be the acquirer rather than the target.
Maple has offered C$3.8 billion for TMX, mostly in cash.
LSE's mostly-stock offer was worth about C$49 a share.
It would have needed a green light from a government that last year vetoed a big international takeover as not being in Canada's best interests.
TMX shares touched a high of C$44.80 after the deal was scrapped before easing back to C$44.60 by mid afternoon. That's still below the Maple offer price of C$50 a share.
Maple also wants to wrap in Alpha, Canada's biggest alternative trading venue, and the CDS stock trading clearing system. That would give it a market share of more than 80 percent and leave it facing anti-trust concerns.
Now we need to see what the Competition Bureau thinks of Maple. We also need to see if shareholders support Maple. I think they will, I don't see how they won't, said Alison Crosthwait, director of global trading strategy at Instinet.
We're going back to more of a closely held, interested parties controlling the exchange.
Canada's independent Competition Bureau has bared its teeth lately on several fronts, getting a C$10 million payment from BCE Inc's Bell Canada unit for misleading advertising, and seeking to block a joint venture between Air Canada and United Continental.
(Additional reporting by Andrea Hopkins, Euan Rocha, Solarina Ho, Jonathan Spicer, Allison Martell and Trish Nixon; editing by Janet Guttsman)