LSE cries foul at rival bid for Canada’s TMX

THE BID threatening to derail the London Stock Exchange’s agreed merger with Canadian peer TMX Group should raise significant regulatory concerns, the chief of the London bourse has claimed.

A consortium of Canadian banks and pension funds, known together as the Maple group, tabled a counterbid to the LSE’s offer at the weekend.

But speaking on Friday, before the rival bid was confirmed, Xavier Rolet told City A.M. a bid by Canada’s banks would be “a takeover of a piece of infrastructure, [and] it is very important it remains neutral, by a small subsection of clients.”

His concerns centre on the possible conflict of interest of several banks controlling an exchange where their clients could be listed.

“It’s certainly a step backward. There could be some conflicts of interest, especially if they’re underwriting a company and they own the exchange,” said Renee Coyler, a former senior director at the Toronto Stock Exchange and founder of Canadian research house Forefactor.

Canadian regulators are currently weighing the London Stock Exchange’s C$3.2bn (£2bn) all-share merger deal with TMX Group, in a bid that values shares in the Toronto bourse at C$40 per share.

The opposing Maple group bid consists of cash and shares valued at C$3.6bn, in a deal that prices shares in TMX at C$48 per unit.

The consortium, led by former Montreal exchange chief executive Luc Bertrand, includes Toronto-Dominion and the Bank of Nova Scotia. It also includes the Canadian Imperial Bank of Commerce and Quebec-based National Bank of Canada. Five pension funds are also involved.

TMX said it was pressing ahead with its merger with the London Stock Exchange, although it said it would evaluate the Maple group approach.

Additional reporting by Alison Lock.

MAPLE BID
SHARES: 0.3016 of one share in combined entity

CASH: C$33.52 per share up to $2.5bn

TOTAL: C$3.6bn (C$48 per share)

COMBINED STRUCTURE: Maple owns 60% of new company

LSE BID
SHARES: 2.9963 LSE shares for 1 TMX share

CASH: N/A

TOTAL: C$3.2bn (C$40 per share)

COMBINED STRUCTURE: LSE owns 55% of new company

WHO’S WHO IN THE MAPLE CONSORTIUM?
CANADA PENSION PLAN INVESTMENT BOARD
A pension fund giant in Canada. Set up by the state to manage public sector pensions, it invests in thousands of companies around the world.

NATIONAL BANK OF CANADA
The sixth largest bank in the country by market cap. Based in Quebec and used by French Canadians.

BANK OF NOVA SCOTIA
Canada’s third largest bank by market cap. It is a key investment banking player in the country.

ALBERTA INVESTMENT MANAGEMENT CORPORATION
One of Canada’s largest fund managers.

ONTARIO TEACHER’S PENSION PLAN
Pension fund responsible for public school teachers in the province. It is one of the most powerful investors in Canada.

CAISSE DE DÉPÔT ET PLACEMENT DU QUÉBEC
Manages public pension plans in French-speaking Quebec. It controls billions in assets.

FONDS DE SOLIDARITÉ FTQ
A smaller union-sponsored investment fund operating in Quebec. It invests in local corporations to gain returns or boost jobs.

TORONTO-DOMINION
Canada’s second largest bank by market cap, a key player in the Maple group of financial institutions.

CANADIAN IMPERIAL BANK OF COMMERCE
Canada’s fifth largest bank by deposits, headquartered in Toronto.

Q&A: WHAT NEXT FOR LSE AND TMX?
Q. HOW WOULD A COLLAPSED MERGER AFFECT THE LONDON STOCK EXCHANGE?

A. Failure to tie up the deal with the Toronto Stock Exchange owner could prove to be a costly humiliation for London Stock Exchange chief Xavier Rolet.

His plans to save the London bourse from becoming a takeover target for a bigger rival could now unravel, leaving the LSE vulnerable.

Q. HOW WOULD A COLLAPSED MERGER AFFECT TMX GROUP?

A. Like London, the Toronto exchange would once again be a possible candidate for a rival to step in and buy it.

The exchange has grown in stature in recent years and would not want to miss out on the global wave of bourse consolidations. It would return to life as a relatively small player should it not succeed in linking up with another exchange.

If Maple succeeds in buying the exchange, it could still be a takeover target and the group could be forced into the position of selling to the highest bidder.

Q. DOES THE LONDON STOCK EXCHANGE NEED TO UP ITS BID?

A. The LSE might not need to increase its offer, as TMX’s shareholders could feel they would be better off in the long-run as part of a new global exchange. The global stance of the London bourse, as well as its set of heavyweight commodity listings, could prove to be too attractive for shareholders to let pass by.

Q. HOW WOULD A COLLAPSED MERGER AFFECT CANADA’S REPUTATION?

A. Already well known for its protectionism, the country could further knock its reputation as a global business destination if it waves through a local bid in favour of an international offer. After blocking BHP Billiton’s $39bn approach for Potash late last year, it would be the second major deal to hit the rocks in the country. However, Canada’s new Conservative government, voted in earlier this month, is said to be more open to international deals than its predecessor.

MEET THE ADVISERS
SIMON ROBEY
MORGAN STANLEY
MORGAN Stanley is acting as joint lead financial adviser to the London Stock Exchange on its merger with TMX Group.

The bank’s UK head and co-chairman of global mergers and acquisitions Simon Robey is the lead advisor to the Stock Exchange.

He advised Cadbury during its takeover by US giant Kraft and also defended Marks & Spencer against an approach from Sir Philip Green.

He also advised Abbey National on its takeover by Spanish bank Santander.

Outside banking, he once considered a career as a professional singer and chairs the Royal Opera House.

Christopher Carter, Matthew Jarman, Max Mesney and Dougal MacDonald join him on the Morgan Stanley team advising the LSE.

Barclays Capital is also acting as joint lead financial adviser to the stock exchange. Managing director and co-head of M&A Mark Warham is the lead adviser. He previously served as director general of the Takeover Panel.

Andrew Owens joins him in London, whilst Joel Fleck is working on the merger from New York.

Canadian bank RBC Capital is also a financial adviser to the LSE, headed by Mike Carter and Josh Critchley in London.