TORONTO A consortium of Canadian banks and pension funds shifted into the driver's seat on Wednesday in the fight to take over the operator of the Toronto Stock Exchange but it must still dodge a raft of antitrust concerns.
With a merger of the London and Toronto stock exchanges now dead, homegrown bidder Maple Group has the only takeover offer on the table for TMX Group, which operates Canada's major stock market.
Maple Group, a consortium of 13 banks, pension funds and financial service firms, had correctly predicted it would derail the London Stock Exchange's friendly deal to take over TMX.
But Maple must now grapple with widely aired concerns about its nationalistic bid for TMX. The major worry centers on Maple's plan to fold Alpha Group, the country's biggest alternative trading system, into the post-takeover TMX. The combination would give the TMX-Maple entity more than 80 percent of the Canadian stock-trading market.
"Now we need to see what the Competition Bureau thinks of Maple. We also need to see if shareholders support Maple. I think they will, I don't see how they won't," said Alison Crosthwait, director of global trading strategy at Instinet.
"This is a big change in terms of going back -- I do use those words intentionally -- we're going back to more of a closely held, interested parties controlling the exchange .... I think the conflict of interest is serious and significant and the motivation to compete globally is just not there."
Maple spokesman Luc Bertrand has already said the group will consider divesting Alpha if the Competition Bureau makes such a request.
"If it means we have to have a discussion with the bureau on an arrangement of some kind, definitely we will sit down and do that," Bertrand said on Monday, as he lobbied to sell his bid to TMX shareholders.
The Competition Bureau, an independent law enforcement agency, has bared its teeth lately on several fronts, getting a C$10 million payment from BCE Inc's Bell Canada unit for misleading advertising, and seeking to block a joint venture between Air Canada and United Continental.
TMX and the LSE abandoned plans on Wednesday for their C$3.6 billion ($3.7 billion) combination as it became clear they would not win enough shareholder support for their transatlantic alliance.
Proxy advisory firms had recommended the LSE bid, but investors had a difficult time choosing between the cash-rich Maple deal and an LSE offer that was almost all in stock.
The aborted LSE deal allows Maple to submit its C$50 a share offer to TMX shareholders, despite the disappointment of TMX executives mourning the loss of their chosen partner.
"It's their (TMX's) fiduciary duty to talk with Maple, there's no longer an offer from LSE, so they have to engage with them," said Chris Damas, an independent analyst and TMX shareholder.
One independent Canadian financial firm that had supported the LSE deal, Caldwell Securities, said the Maple deal was akin to giving control of yet another financial sector to Canada's powerful banks -- making divestiture necessary.
"If the Maple proposal prevails, then it would be reasonable to request a divestiture program down to 40 percent (of TMX) for the group, over a period of time. Three years might be appropriate," Thomas Caldwell said in a full-page newspaper ad that ran before the LSE and TMX aborted their merger plans.
Maple Group, officially formed in May, took root soon after the LSE announced plans in February to create a transatlantic powerhouse of mining and energy equity by combining with TMX.
Maple, whose all-Canadian members include four major banks, five huge pension funds and North America's top life insurer, says in its unashamedly nationalistic proposal that it will keep TMX, which it calls a vital domestic asset, in Canadian hands.
(Additional reporting by Euan Rocha, Solarina Ho and Allison Martell; editing by Peter Galloway)