May 26, 2011 / 5:28 PM / 6 years ago

REFILE-WRAPUP 1-No sure bets in race for Canada's TMX

(Refiles to correct location of Macquarie Research office to New York from Toronto in fourth paragraph)

*Two bid for Canada exchange, success not sure for either

*Nasdaq says time to move on after failed NYSE bid

*LSE dismisses Maple's hostile bid for Canadian operator

By Solarina Ho and Luke Jeffs

TORONTO/LONDON, May 26 (Reuters) - There's no clear winner between the two bids for Toronto's main exchange operator, as price, a monopoly position and the possible reaction to the loss of a national treasure play into investors' decision.

Accepting a $3 billion friendly offer for TMX Group (X.TO) from the London Stock Exchange (LSE.L) at a fast-track shareholders meeting on June 30 would leave the final decision in the hands of Canadian regulators who must assess if the takeover is in the country's best interests.

But a sweeter hostile bid from the bank-led Maple Group could run up against Canadian antitrust rules, as a bank-run exchange would have an overwhelming share of the market.

"Shareholders are in a tough spot right now. They would love for the higher offer to be a choice for them, but they're unsure is that a realistic offer," said Ed Ditmire, an analyst with Macquarie Research in New York, referring to the Maple Group's proposal.

"Is that something that can be approved by the competition authorities? Over the near term, what the shareholders will be looking for is one (thing): Regulatory clarity." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ FACTBOX-Details on competing TMX Group bids[ID:nN26242367] SCENARIOS-Alternative dance partners: [ID:nN17194850] DEALTALK-Thorny era for bourse mergers: [ID:nN19193299] FACTBOX-History of exchange mergers: [ID:nLDE74F1BL] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Canada, which bills itself as open for business, shocked the financial world last year when then-Industry Minister Tony Clement blocked a hostile bid by Anglo-Australian mining giant BHP Billiton (BLT.L) (BHP.AX) for fertilizer producer Potash Corp, arguing that it would not be in Canada's best interest.

SWEETER BID

It's not known if new Industry Minister Christian Paradis will take a similar tack, and indeed if the LSE will sweeten its bid to match the $3.7 billion Maple price.

Doing so might make the offer more palatable to investors. But it would also destroy the line that the deal is a merger of equals, the promise that the TMX has used in its efforts to sell the proposal to a skeptical domestic audience.

Nationalism "certainly resonates with some levels of government," said Thomas Caldwell, whose firm, Caldwell Securities, is the 45th-largest investor in widely held TMX Group.

Caldwell still backs the LSE offer, and did not rule out the possibility of a sweeter bid from the Londong-based operator, whose proposal will need the backing of Canadian provincial securities regulators as well as from Paradis.

"I guess it's a philosophical point," he said. "I like the idea of an independent market, independent from its biggest trading environments, public governance and everything else -- the public will only own 40 percent. And frankly banks tend not to build industries. They tend to destroy them."

TARGETING LONDON

Failure of the LSE bid could leave the London exchange a sitting duck as predators circle.

Since Maple launched its rival TMX bid on May 14, the LSE's shares have risen steadily in anticipation of a deal that could make it too large to be a realistic target for rivals such as U.S. exchange Nasdaq OMX and the Singapore Exchange (SGXL.SI), both of whose merger plans have been dashed in recent weeks.

Nasdaq (NDAQ.O), fresh off its failed bid for long-time rival NYSE Euronext, signaled on Thursday it will now focus on other ways to grow. U.S. regulators blocked the $11 billion bid earlier this month on antitrust grounds. [nLDE74F0SA]

"We are grateful that the bid was a brief interlude of focused effort by select members of the management team," Nasdaq Chief Executive Robert Greifeld told investors at a brief annual meeting. [ID: nN26242182]

"Certainly we are disappointed with the outcome, but we felt we owed it to our shareholders and our customers to consider this proposal and ultimately to pursue it."

Yet with exchanges planning to band together to cut costs and diversify revenue sources, analysts say Nasdaq could strike a deal, possibly with Singapore Exchange options specialist CBOE Holdings Inc (CBOE.O), or even for the LSE.

Nasdaq partnered with IntercontinentalExchange Inc (ICE.N) early last month to bid $11.3 billion for NYSE and thwart the Big Board's friendly merger with Germany's Deutsche Boerse AG (DB1Gn.DE). The pair backed down after the U.S. Department of Justice blocked the bid on antitrust grounds. [ID:nLDE74F0SA]

GOING HOSTILE

Maple went hostile with its offer for TMX on Wednesday after the exchange operator rejected its initial bid.

The group, which comprises four big Canadian banks and a number of pension funds, describes its offer as a made-in-Canada solution that will keep the Canadian exchanges in domestic hands.

The TMX, which operates the Toronto Stock Exchange, the TSX Venture Exchange for small-cap stocks and the Montreal Exchange for derivatives, has said its board rejected the Maple Group offer because it was inadequate and too risky.

"Maple's is a highly dubious construction where billion dollar questions remain unanswered," LSE Chief Executive Xavier Rolet told Reuters.

He said shareholders should ask how Maple would fund a purchase that includes the subsequent merger with Canadian trading platform Alpha and domestic clearer CDS.

""Maple is already at three times leverage and if they pay cash for Alpha and CDS this will go much higher again, whereas if they pay stock, the banks stake in the merged entity goes over 50 percent -- which should be of concern to the regulators," Rolet said. (Additional reporting by Jonathan Spicer, writing by Janet Guttsman; editing by Frank McGurty)

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