TORONTO Endorsements from leading proxy advisory firms could become the London Stock Exchange's (LSE.L) secret weapon as it bids for the widely held TMX Group (X.TO), operator of the Toronto Stock Exchange.
But it's still not clear if the deal's backers will muster the two-thirds of the shares they need for the C$3.6 billion ($3.7 billion) proposal to go ahead, or if shareholders will prefer a C$3.8 billion hostile offer from Maple Group, a consortium of Canadian banks and pension funds.
A "No" vote for LSE at a shareholder meeting on Thursday means the Maple offer proceeds to its own shareholder vote. A "Yes" vote kills Maple's offer and leaves the LSE's friendly takeover in regulators' hands.
"There are two big proxy firms that have recommended the LSE/TMX merger, and that's a big plus for that merger," said a high level Canadian competition lawyer who could not be quoted by name due to his firm's policy.
"There are a lot of mutual fund companies and others that listen to these firms because it gives them a kind of protective cloak to vote in favor of a merger."
The takeover battle for TMX Group has become increasingly polemic, raising a debate about how Canada should react to a race for growth among global exchanges.
Canada's Conservative government, which has veto rights over the LSE proposal, has stayed silent on the merits of the two offers. But the opposition New Democratic Party said it will outline its concerns about the LSE bid on Wednesday.
The Liberals, the third largest party in Parliament, said in a letter to Industry Minister Christian Paradis that the LSE deal could lead to a sell-off of Canada's largest exchange to "virtually anyone."
"To be fair to shareholders, it is vital that you consider the Maple offer in determining which course of action is most likely to provide a net benefit to Canada," the party wrote.
The LSE bills its mostly-stock proposal as a merger of equals and promises to create a transatlantic exchange that would be a powerhouse of mining and energy listings.
The Maple Group, whose all-Canadian members include four major banks, five huge pension funds and North America's top life insurer, says in an unashamedly nationalistic proposal that it will keep a crucial domestic asset in Canadian hands.
Glass, Lewis & Co, a major U.S.-based advisory firm, recommended for a second time on Tuesday that TMX shareholders vote in favor of the LSE offer at Thursday's 10 a.m. EDT meeting. The meeting is timed to coincide with a parallel decision from LSE shareholders.
Both sides sweetened their bids last week.
Proxies for the June 30 vote are due in on Tuesday, and supporters and critics on all sides have come out this week in an eleventh hour effort to rally shareholders.
The updated report from Glass Lewis comes a day after the LSE and TMX said a total of five proxy advisory firms have recommended its offer, including Institutional Shareholder Services and three European firms.
"On the balance, despite improvements to Maple's offer, which we believe make this an even closer call than before, when compared to the enhanced LSE proposal and weighed against the risks that remain in each proposal, we ultimately believe the LSE-TMX merger remains the best alternative for TMX shareholders," Glass, Lewis & Co said.
Chris Damas, an analyst and TMX shareholder who opposes the LSE bid, said it was unclear to what extent shareholders will follow the proxy firms recommendations.
"I think it will be close, but 40 percent of the stock is held in the U.S. ... so all this discussion of what Canadians are going to do is pretty irrelevant," he said.
(Additional reporting by Allison Martell, Solarina Ho and Randall Palmer; Editing by Janet Guttsman)