A lack of shareholder support scuttled the London Stock Exchange’s acquisition of the Toronto Stock Exchange, leaving a home-grown consortium of mainly Canadian financial firms as the only merger candidate–at this point.
The consortium, known as the Maple Group, would control as much as 80 percent of all Canadian equity trading volume if its bid wins out.
A press release on the TMX website reported the deal’s fate: "A majority of shareholder votes cast by proxy prior to the June 28, 2011 proxy cutoff supported the merger resolution; however, it is clear that the two-thirds threshold required to approve the merger would not have been achieved."
Robert Hegarty, global head of market structure at Thomson Reuters, told Traders Magazine the success of the deal came down to one thing–money.
"Everyone has to remember what the shareholder vote is all about. It’s not that surprising to me that they [LSE] couldn’t get the shareholders’ approvals," he said. "Market structure is being formed based on the creation of shareholder value, not necessarily on what is the optimal market structure. If I’m a shareholder, I am only concerned with one thing–maximizing my investment."
And with the Maple bid, C$3.8 billion, higher than LSE’s $C3.6 billion, the choice was clear.
"Shareholders are saying they really don’t care or want to know about the future implications of market structure, but they want to know who is going to pay them the most for their investment in TMX," he said. "And right now, from a financial standpoint, that is Maple."
The Maple Group is composed of: CIBC World Markets, National Bank Financial, Scotia Capital and TD Securities Inc., as well as Alberta Investment Management Corporation, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Fonds de solidarite des travailleurs du Quebec and Ontario Teachers’ Pension Plan Board. It also includes Desjardins Financial Group, a financial cooperative that markets financial and insurance products; Dundee Capital Markets, an independent broker-dealer and financial services providers GMP and Manulife.
A wide range of Canadian market pros say the Maple Group will not have an easy time getting the approval from the numerous regulators. Their concern, observers say, is exchange competition. They fear that a winning bid by Maple would join the Toronto Stock Exchange with Alpha, its top competitor. The two would have an 80 percent market share. Alpha is owned by a number of the Canadian Banks, some of which are part of Maple.
But will anyone else come in, now that the LSE deal has fallen apart? Robert Young, chief executive at Liquidnet Canada and former vice president of sales and marketing at the Toronto, said it’s possible.
Maple’s bid for the TMX, he pointed out, remains a hostile one.
That too could delay or even potentially scuttle any deal. "They’re [Maple] facing more of an uphill battle for the TMX as they will need 70 percent of the shareholder vote for approval," Young said.
He also said that the additional time now required to process a Maple bid will only serve to distract the TMX from pursuing other goals. Young said the exchange could be devoting time and resources to updating its technology and infrastructure, rather than analyzing legal documents and other merger-related documents.
"They have been distracted for a year already," Young said.
Regardless, TMX Group, owner of the TMX, said in its press statement it will continue to pursue its growth objectives and the TMX Group Board will review the exchange’s opportunities, including the offer from rival Maple Group.
In terminating the merger agreement, TMX Group has agreed to pay a C$10 million expense fee to the LSE, as well as a further C$29 million fee to LSE if, within 12 months, either the acquisition proposal made by Maple is consummated.
Separately, Hegarty noted that nationalism arose as a result of the of the Toronto merging with a London-based exchange. But in the end it was all about price. "Financials, I suspect, played the most significant role in this," Hegarty said.
"We’re now seeing how national interests are affecting merger consolidation across the globe," he said. "Now we’re really seeing why Maple was formed – to keep the Canadian markets Canadian – and I’m not sure the Maple bid will have as much teeth now that there is no LSE bid."
Hegarty added that now with the LSE bid gone, it was unclear if the Maple Group would follow through on acquiring the TMX.
"The dynamics of the deal and why they were doing it," he said, "have changed."
