NEW YORK/TORONTO TMX Group Inc, the operator of the Toronto Stock Exchange, is in talks to buy U.S. stock market operator Direct Edge Holdings LLC, sources familiar with the matter said on Wednesday.
The deal hinges on TMX closing its own deal to be acquired by Maple Group, a consortium of Canadian banks, pension funds and financial firms, one source said.
Maple received final regulatory approval for its C$3.8 billion ($3.72 billion) acquisition of TMX late on Wednesday. TMX urged its stakeholders to tender their shares to the deal.
Direct Edge has been looking for a buyer for months, the sources said. One source said the exchange operator was initially looking to sell for around $800 million, but now the price is likely to be around $500 million. Another source, however, said that the price could be around $300 million.
A spokesman for Direct Edge, the No. 4 U.S. stock exchange by volume, declined to comment on the news, which was earlier reported by the Wall Street Journal. A spokeswoman for TMX also declined to comment.
The talks follow a series of failed merger attempts over the last couple of years in the exchanges industry. A sale would allow Direct Edge's owners to profitably cash out and give TMX a toe-hold in the U.S. market.
Direct Edge is owned by a consortium that includes the International Securities Exchange, Knight Capital Group, Citadel Derivatives Group, Goldman Sachs Group, and J.P. Morgan.
TMX Chief Executive Thomas Kloet said in an interview with Reuters last month that once the TMX-Maple deal is complete, TMX will be "uniquely positioned" to expand globally through acquisitions.
Kloet, a former CEO of the Singapore Exchange, said he would look to the United States, Europe, Asia and South America for deals, and that size was not an issue as long as there were synergies and the deal was accretive to shareholders.
"He (Kloet) probably doesn't want to wait until the board gets reconvened because he wants to get this approved with his existing board as opposed to having a new Maple board," one source said.
US LISTINGS BUSINESS EYED
Direct Edge has called an "all-hands-on-deck" meeting for Thursday evening, the source said.
TMX ultimately would like a U.S. listing market, the source said. There are around 90 U.S. firms listed on the TSX Venture Exchange for small-cap companies.
That would ramp up Direct Edge's competition with NYSE Euronext, and Nasdaq OMX, which are currently the only U.S. exchanges that companies can list on. BATS Global Markets lists exchange traded products.
Prior to joining Direct Edge, CEO Bill O'Brien was in charge of listings for Nasdaq.
The exchange industry saw a frenzy of merger attempts in the past year, four of which fell through. Regulators blocked an attempted merger between Deutsche Boerse and NYSE, as well as Nasdaq and IntercontinentalExchange's attempted takeover of NYSE.
Singapore Exchange Ltd's bid for Australia's ASX Ltd was blocked by the Australian government. The London Stock Exchange's bid for TMX was halted by TMX shareholders, who leaned more towards the Maple transaction.
(Reporting by John McCrank and Paritosh Bansal in New York and Jennifer Kwan in Toronto; Editing by Andrew Hay)