A consortium of Canadian banks and pension funds raised its hostile bid for the operator of the country's biggest stock exchange on Wednesday, with a cash-and-stock proposal that nudged ahead of the London Stock Exchange's just-sweetened, friendly bid.

In an announcement hours after the LSE added a cash component to its offer in the form of dividend payouts to shareholders of both exchanges, the Maple Group said it raised its cash and stock offer to C$50 a share from C$48.

It said it would increase the number of TMX shares to be purchased for cash to a maximum of 80 percent, from 70 percent, and valued its bid at C$3.8 billion ($3.9 billion).

Obviously our quick response sends a powerful message to them that we are in this to win, a Maple source told Reuters. The source, who was not authorized to speak on the record, asked not to be identified.

The London and Canadian exchanges say their tie-up will create a Transatlantic stock trading powerhouse with a particular specialization in minerals and raw materials companies, the existing strength of the Toronto Stock Exchange.

But critics said it would propel a key Canadian firm into foreign hands, and Maple played an unashamedly nationalistic card in tipping its bid as a made-in-Canada solution.

In a brief statement, TMX said it acknowledged the new Maple offer and would review it.


The LSE sweetener, announced on Wednesday afternoon, came in the form of special dividends of C$4 per TMX share and 84.1 pence per LSE share, in an effort to woo shareholders from both companies. Analysts said it was worth just under C$49 a share.

I always did feel that the Maple deal was a better deal than the LSE offer and this just makes it more attractive, Chris Damas, an independent analyst and TMX shareholder, said after Maple announced its higher offer.

The Maple offer is contingent on shareholders rejecting the LSE proposal at a shareholder meeting scheduled for June 30.

Maple also wants to wrap in Alpha, Canada's largest alternative trading platform, and clearing house CDS, both of them largely owned by financial institutions that are a part of the Maple Group.

That will give Maple more than 80 percent of Canadian stock trading and make the offer subject to anti-trust review.

Damas said he would be more satisfied if Maple removed the clause that ties the deal to regulatory approval of the Alpha acquisition -- a likely stumbling block.

This gets us close to there. I would like the offer more if they drop Alpha and CDS as requirements to close the deal.

Maple said the increased cash purchase price will be funded entirely by additional proportionate equity investments by its 13 members, a consortium of four of Canada's biggest banks, five pension funds and four financial services firms.

It said it would be willing to negotiate a break-fee in case regulators reject its offer, a response to a TMX complaint that shareholders were being forced to assume all the risk in the proposed transaction.

TMX stock, halted pending the LSE announcement, rose about 1 percent on Wednesday C$44.25, and some shareholders questioned if the new LSE 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.


Formally rejecting Maple's previous bid earlier on Wednesday, the TMX 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 told Reuters that the decision to sweeten the friendly bid showed the companies' confidence in the deal and reflected discussions with TMX shareholders.

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.

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.

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.

($1=$0.97 Canadian)

(With additional reporting by Andrea Hopkins, Solarina Ho and Victoria Howley; editing by Janet Guttsman)