Canada's TMX undeterred as hostile bid looms

NEW YORK/TORONTO Fri Jun 10, 2011 3:29pm EDT

TMX Group CEO Tom Kloet speaks during a news conference regarding the merger of the TSX and the London Stock Exchange (LSE) in Toronto, February 9, 2011. REUTERS/Mark Blinch

TMX Group CEO Tom Kloet speaks during a news conference regarding the merger of the TSX and the London Stock Exchange (LSE) in Toronto, February 9, 2011.

Credit: Reuters/Mark Blinch

NEW YORK/TORONTO (Reuters) - The heads of TMX Group Inc (X.TO) and the London Stock Exchange Group Plc (LSE.L) said on Friday it is full steam ahead for LSE's friendly takeover of the Canadian market operator even though a hostile bid for TMX could come "any day now."

The expected $3.7 billion counteroffer from the Maple Group consortium of Canadian banks and pension funds will throw a new hurdle in the path of the LSE's offer to buy the Toronto Stock Exchange parent for about $3.5 billion.

But TMX Chief Executive Tom Kloet said Maple has yet to put forth a "genuine offer." The CEOs of the two exchanges said they were on a "roadshow" to boost the credentials of the LSE deal ahead of the June 30 shareholder vote.

LSE's planned takeover must pass muster with the Canadian government, which will decide if it meets the terms of the Investment Canada Act, which says foreign takeovers must carry a "net benefit" to Canada.

"We think we're in quite good shape now," Kloet told a global exchanges conference hosted by Sandler O'Neill in New York on Friday.

He said the company is "in active dialogue" with the government over the deal, which was announced in February. "We remain confident that we're on track for that approval."

Kloet and LSE Chief Executive Xavier Rolet said their bid was different from other transatlantic exchange tie-ups in that it focused on growth and building new businesses, while other combinations have focused on cost and revenue savings.

With less than three weeks before shareholders vote, Maple Group's circular, its formal pitch, is expected soon.

That will provide additional details on the structure of Maple's $48 a share offer. A source with knowledge of the deal said the circular will not give specifics on the valuations for Alpha Group, Canada's biggest alternative trading system, and for the CDS clearinghouse.

Both entities are controlled by Canada's big banks and could be put under TMX's umbrella if the Maple deal wins regulatory and shareholder approval.

The Maple bid, once official, will face antitrust scrutiny because of the Alpha and CDS proposals give the new entity a big share of the Canadian market.

Rolet said on Friday the Maple bid was subject to "a competition review that at best looks highly problematic."

More financial institutions are set to join the Maple bid, although none have yet signed on, and time is running short for Maple to persuade TMX shareholders that its "all-Canadian" option is better for the country's capital markets.

"There's a lot of emotion in that (Maple) deal, I'm not really sure why or where it comes from," Rolet told Reuters on the sidelines, calling the emotional component surprising.

Responding to what he called mischaracterizations, Kloet said TMX and LSE did not accelerate the shareholder vote date, noting June 14 was the original target. He added the date could be changed if the pair agreed, but that wasn't his intention.

Shares of TMX were down 37 Canadian cents at C$43.93 on the Toronto Stock Exchange on Friday afternoon.

($1=$0.98 Canadian)

(Additional reporting by Pav Jordan; editing by Janet Guttsman)