* Bay St bank "guard dogs" make white knight bid unlikely
* Shareholders seen succumbing to C$50/share bid
* A friendly deal would help overcome antitrust hurdle
* Leverage, regulatory hurdles remain shareholder concerns
By Solarina Ho
TORONTO, July 10 Canada's largest stock market
operator will likely succumb to Maple Group's C$3.8 billion
($3.96 billion) takeover bid as Bay Street's bank "guard dogs"
scare off white knights and shareholders opt for hard cash over
promises of growth.
While some markets watchers speculate a rival bid could
still surface for TMX Group (X.TO), operator of the Toronto
Stock Exchange, analysts and fund managers say few players can
match the financial firepower of the Maple Group consortium.
The group, which includes some of Canada's biggest bank and
pension funds, became the sole bidder for TMX following the
collapse last month of the London Stock Exchange's (LSE.L)
friendly takeover offer.
"Any party would find negotiating a combination with the
TMX to be incredibly tricky with the kind of guard dogs of the
banks in front of them," said Ed Ditmire, an analyst at
Macquarie Capital in New York.
While Maple was born as an attempt to block an LSE takeover
of TMX, the LSE's departure does not seem to have weakened its
Luc Bertrand, chief representative of Maple, told Reuters
on July 6 the group hopes to complete its acquisition of TMX on
friendly terms, but is "fully committed" to getting the deal
Bertrand also said Maple's existing hostile bid is "as
strong as you can possibly imagine", suggesting it has little
fear of a foreign contender like Nasdaq .OMXC20 stepping in.
"Even though (Nasdaq) seem to be very aggressive, I'm not
sure they have anymore capital than the LSE had to put toward a
better deal," said Chris Damas, an independent Ontario-based
analyst. "They would be outgunned by the Maple Group."
Still, Damas believes there's a slim chance LSE could come
back with a partner that has a bigger bank account.
CASH IS KING
With no serious white knights on the horizon, Maple is
focused on overcoming key hurdles to its bid.
As it stands, the Maple bid needs 70 percent of
shareholders to tender their shares by Aug. 8. The offer works
out to C$50 a share in stock and cash. TMX Group shares closed
at C$44.15 in Toronto on Friday.
"If we get (C$50/share) in September, it's hard to beat
that kind of summer return. Plus the dividend," Damas said.
"Bertrand said he didn't have to raise the offer price --
who can blame him? He's the only game in town right now."
Not all shareholders will succumb easily, however.
Some express concern over the amount of leverage Maple
brings to the deal, and say this may be why the group is keen
to have Royal Bank of Canada (RY.TO) and Bank of Montreal
(BMO.TO) join the consortium.
Those two big banks were advisors in the LSE-TMX deal. The
equity they would bring to Maple if they joined the consortium
could reduce its leverage to a level acceptable to the TMX
FRIENDS WITH BENEFITS?
Canada's increasingly aggressive competition watchdog, led
by a tenacious former litigator, also could pose a major
obstacle to Maple's bid. [ID:nN1E76411R]
Maple hopes to integrate Canada's largest alternative
trading platform, Alpha, which is also owned by many of the
same Maple members, with TMX. Critics say this would give the
group too much control of the market.
Yet many think Maple's regulatory campaign could be given a
boost if it wins over TMX management, which reacted coolly to
the Maple bid and has touted its growth prospects as a
stand-alone entity. [ID:nN1E75T0MW]
"If you have both parties on board trying to lobby and make
the best case -- that this combination is acceptable from an
antitrust perspective -- it would go more smoothly than if TMX
was brought into it kicking and screaming," said Macquarie's
The TMX may try to build a case for independence through
managing its leverage more aggressively, returning more cash to
shareholders and efficiency programs.
But market watchers said the feasibility of such a plan
remains to be seen, and in the end TMX management may have no
choice but to acquiesce and accept a friendly deal.
"Unless (TMX CEO Tom) Mr. Kloet comes up with something
that makes real sense to shareholders, I can't see how with a
$50 offer on the table, how he can fight back unless he can
come up with a rabbit out of the hat," said Stephen
Jarislowsky, the billionaire investor and chief executive of
Jarislowsky Fraser Ltd.
(Editing by Jeffrey Hodgson and Peter Galloway)