A Canadian consortium of banks and pension funds has taken its $3.8 billion (C$3.7 billion) takeover offer directly to TMX Group shareholders, touting the proposal as the best way to keep the country's exchanges out of foreign hands.
Maple Group Acquisition Corp launched the hostile bid on Monday through a takeover circular that outlines an alternative to London Stock Exchange Group's friendly $3.5 billion bid for TMX, the operator of the Toronto Stock Exchange.
Maple's formal offer is nearly identical to a preliminary proposal unveiled nearly a month ago, except Maple now will buy up to 70 percent of TMX shares, up from 60 percent originally. But the offer price of C$48 a share in cash is the same.
Even so, TMX's stock rose about 1 percent on Monday, signaling some shareholders liked the overall proposal.
Now that the Maple bid is out and they've improved it, but not really sweetened it, I think the TMX stock is already responding, said Chris Damas an independent analyst who owns a sizable number of TMX shares. He says he now favors the Maple offer, given the information presented so far, but he would still like to see a higher price.
The TMX takeover battle, which has polarized Canadian public opinion, is part of a wave of consolidation sweeping the world's top exchanges. Singapore Exchange (SGX) Ltd's triggered a spate of deals last year with its failed attempt to buy Australia's ASX Ltd.
With time running out before a June 30 shareholder vote on the LSE offer, Maple also extended an olive branch to TMX's current management, saying it will retain Chief Executive Tom Kloet and his team.
The gesture resonates because Kloet, then an outsider, took the helm of the newly formed TMX in 2008, beating out Luc Bertrand, a banker who now is the public face of the Maple Group.
The LSE says its offer will build a transatlantic trading powerhouse that could compete on a global stage, but critics say it would marginalize Toronto as a financial center.
Maple - comprised of four Canadian leading banks, five top pension funds and four new institutional investors - insisted its plan will promote competition in securities trading even as it folds the biggest competitor to TMX's exchanges into the group. A review by Canada's Competition Bureau is one of the biggest concerns surrounding the Maple bid.
LSE's planned takeover must pass muster with the Canadian government, which must decide if it is of net benefit to Canada. Maple won't face such a review because it is completely Canadian.
We encourage you to think critically about the case the LSE is making for its deal, Luc Bertrand, Maple's chief spokesman and vice-chairman of Quebec-based National Bank told shareholders and analysts on a conference call.
We encourage you to think even more critically about the case they have been trying to make against our superior proposal.
TMX said in a statement it would review the formal Maple bid, which it already had rejected in its preliminary form on May 20.
The $3.8 billion price is based on C$48 multiplied by the number of fully diluted shares, Maple said. A previous $3.7 billion value was calculated based on the number of basic shares outstanding.
Nothing has changed, the $48 is a smokescreen - the only guarantee is $33 cash per share, LSE Chief Executive Xavier Rolet said of Maple's cash and stock offer. This is a structure simply designed to give them control for cash upfront.
In May, Maple said it would exchange each TMX Group share for C$33.52 in cash plus 0.3016 of a Maple share.
Maple was able to shed some light on the valuation of Alpha Group, Canada's main alternative trading platform, as well the CDS clearinghouse.
Based on comparisons with other similar assets, Maple said it believes CDS is worth roughly C$170 million ($173 million), and pegged the value of Alpha at somewhere between C$140 million and C$170 million. It plans to form a special committee to reach a fair value.
Maple's deal would give TMX control of some 80 percent of Canadian stock trading by volume, making a review by competition authorities crucial.
Nearly half of the group's members, the four banks, one of the pension funds and one of its financial services firms, are part owners in Alpha.
Even so, Maple said the Alpha and CDSL transactions would benefit Canadian capital markets and not affect the competitive market for equities trading.
It said its own investors would sell their interests in Alpha and CDSL at whatever prices the committee recommends.
Maple added Desjardins Financial Group, GMP Capital Inc, Dundee Capital Markets and Manulife Financial on Sunday.
Maple's original bank members are the Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Toronto Dominion Bank.
The pension funds are Alberta Investment Management Corp, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Fonds de solidarite des travailleurs du Quebec (FTQ) and Ontario Teachers' Pension Plan Board.
TMX shares were up 1.39 percent earlier in the day to C$44.41, but later pared gains. By midafternoon, the stock was up 0.91 percent on the Toronto Stock Exchange.
(Additional reporting by Euan Rocha in Toronto and Luke Jeffs in London; editing by Janet Guttsman and Frank McGurty)