UPDATE 5-More firms close to joining Maple's TMX bid -source

Tue Jun 7, 2011 3:49pm EDT

* Desjardins Financial, GMP Capital, Dundee Capital named

* One other Canadian firm also may join in $3.7 bln bid

* More Canadian firms would enhance Maple's credentials

* Announcement likely as early as Tuesday afternoon

(adds analyst comment)

By Pav Jordan and John McCrank

TORONTO, June 7 (Reuters) - At least three financial companies plan to join the Maple Group's $3.7 billion hostile bid for TMX Group (X.TO), adding heft to an all-Canadian alternative to the London Stock Exchange's friendly offer.

Desjardins Financial Group, GMP Capital Inc (GMP.TO), Dundee Capital Markets DCM.TO could agree as early as Tuesday to join the consortium challenging the LSE's (LSE.L) $3.5 billion bid for the the Toronto Stock Exchange operator, a source familiar with the situation said on Tuesday.

"The Canadian financial sector is lining up behind the Maple bid," said Laurence Booth, a professor of finance at the University of Toronto's Rotman School of Business.

Bringing more Canadian partners into Maple would bolster the credentials of a bid that its supporters say would preclude the possibility of Canadian capital markets falling under foreign control.

The source, who could not be named because of his company's policy, said a fourth new firm may also join the Maple bid, stressing that the agreements had not yet been finalized.

"There will be some new members announced later today, maybe tomorrow," the source said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ FACTBOX-Key players in TMX battle [ID:nN02238198] TIMELINE-TMX takeover battle http:/r.reuters.com/qez89r Graphic of TMX market share http:/r.reuters.com/kyd89r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Maple Group's current members include four of the country's biggest banks: National Bank of Canada, Canadian Imperial Bank of Commerce (CM.TO), Bank of Nova Scotia (BNS.TO) and Toronto-Dominion Bank (TD.TO).

Five pension funds have also signed on: 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.

BOTH BIDS FACE HURDLES

The Maple bid - which hinges partly on regulatory approval of the acquisition of Alpha Group, an alternative stock trading platform, and the CDS stock trade clearinghouse - faces review by Canada's Competition Bureau.

All four banks and one of the pension funds involved in the Maple bid are owners of Alpha, which competes with the Toronto Stock Exchange.

Bringing in more financial firms that are not owners of Alpha and that want low transaction fees may help dispel the antitrust concerns and enhance the prospects for Maple's success, says Rotman School's Booth.

"When you've got the pension funds and other people that are just interested in low transaction costs also coming out and saying we agree with this, it sort of diffuses the anti-competitive aspects of the Maple bid."

Still, opponents say Maple would have 80 percent of Canadian stock trading by volume if its bid succeeds.

Maple Group has countered by saying ever-increasing competition from U.S. exchanges on dual-listed stocks will hold down trading costs for customers.

TMX shareholders are due to vote on the LSE proposal on June 30, and shareholders who spoke to Reuters in a recent poll signaled that the outcome was still uncertain. [ID:nN02266428]

"The developments in the Maple group are positive and add credibility to the offer," said Ed Ditmire, an analyst at Macquarie Research in New York.

"But TMX shareholders are still faced with a tremendous amount of uncertainty when evaluating their choices ... until they get more feedback from regulators, so they'll have to vote their shares really in the dark in regards to that."

While Maple faces antitrust scrutiny, the LSE bid must pass muster under the Investment Canada Act, which requires foreign takeovers to carry a "net benefit" to Canada. Provincial regulators also have a say, but those hurdles are considered less onerous.

Alison Crosthwait, director of global trading strategy at Instinet, said the new additions to the consortium may not sway sceptical shareholders because the Maple bid is already as Canadian as it can get.

"It certainly doesn't hurt their deal, but it doesn't make me say, 'oh, now Canada is on board,'" said Crosthwait, whose company operates Chi-X, Canada's second-largest alternative trading system.

(Reporting by Pav Jordan and John McCrank; editing by Frank McGurty)

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