(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 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
"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.
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
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."
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]
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)