May 14, 2011 / 5:52 PM / 6 years ago

Canada banks propose TMX deal to rival LSE bid

<p>London Stock Exchange CEO Xavier Rolet (L) and TMX Group CEO Tom Kloet speak to the media in an overall view of the TMX Broadcast centre regarding the merger of the TSX and the LSE in Toronto, February 9, 2011.Mark Blinch</p>

TORONTO (Reuters) - Canada's TMX Group, operator of the Toronto Stock Exchange, has received a takeover proposal from a group of Canadian banks and pension funds that could trump a friendly $3 billion bid from the London Stock Exchange.

A bid from the Canadian financial institutions could represent a more palatable alternative for opponents of the LSE proposal, many of whom are concerned about control of the country's largest stock market falling into foreign hands.

Legislators and other elected officials in Ontario, the province where Toronto is located, want assurances that the city will not lose its status as a world financial center. The latest proposal, announced by TMX in a statement on Saturday, could address those concerns.

"Now Canadians have a Canadian alternative to look at that points to the strength of our financial services sector," said Ontario Finance Minister Dwight Duncan, an early opponent of LSE's takeover bid.

As if to emphasize the Canadian identity of the banks and pension administrators making the proposal, they have taken the name Maple Group Acquisition Corp - evoking the country's most patriotic symbol, the maple leaf.

The Maple Group includes four of Canada's largest banks -- Toronto Dominion Bank, National Bank of Canada, Canadian Imperial Bank of Commerce and Bank of Nova Scotia -- and pension funds from the provinces of Ontario, Quebec and Alberta, a source with knowledge of the deal told Reuters.

Canada's two other largest banks, Bank of Montreal and Royal Bank of Canada, are advisers in the LSE-TMX deal, and support it.

WAVE OF CONSOLIDATION

The offers are part of a wave of consolidation in the global exchange industry. Two bidders are courting NYSE Euronext, while Australia last month rejected an offer for its main exchange from the Singapore Exchange on nationalistic grounds.

The same fate could await the LSE. It must pass muster with a series of provincial regulators, including the Ontario Securities Commission. The final and perhaps most formidable hurdle is a federal review under the Investment Canada Act.

For approval, the government must certify that a deal carries a net benefit for Canada. BHP Billiton's $39 billion bid for Potash Corp, the world's largest fertilizer maker, fell victim to such a review last year.

Alison Crosthwait, director of global trading strategy at Instinet, said the proposal from Maple Group would face the same regulatory hurdles as an LSE deal, but wrapped in the Canadian flag would likely have a better chance of getting through.

"I think Canadians like to own their own institutions and I think the government is going to be more comfortable with a Canadian deal," she said.

OFFER ABOVE MARKET PRICE

TMX did not say how much the financial institutions were prepared to pay for the operator of Canada's largest equities market, only that the cash and equity proposal was above the current market price for TMX shares.

TMX Group stock closed at C$41.75 on Friday, valuing the company at about C$3.11 billion ($3.2 billion), higher than the LSE's all-stock offer. The Globe and Mail said on its website the Maple Group bid was worth C$48 a share, or some C$3.6 billion, compared with the LSE bid of about C$39.21 per share.

"If you have a strong cash bid, if you own stock and you're running a fund, the natural propensity is to take the money and run," said Thomas Caldwell, whose firm, Caldwell Securities, is a major shareholder in TMX Group.

"I'm not sure what their (London's) counter is, unless London says, 'Hey, forget about a stock deal, we can do cash,' but I'm not sure that London has that firepower."

The LSE confirmed on Saturday it had been notified by the TMX of the rival approach from Maple Group, but said it remained committed to its merger with TMX.

In addition to the Toronto Stock Exchange, Ontario-based TMX owns the TSX Venture Exchange for small-cap stocks and the Montreal Exchange for derivatives trading.

Additional reporting by Chris Wickham in London; Editing by Frank McGurty and Todd Eastham

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