TORONTO Canada's increasingly aggressive competition watchdog, led by a tenacious former litigator, poses a major hurdle for the bank-led consortium trying to buy the country's biggest stock market operator.
The Competition Bureau, led by Commissioner Melanie Aitken, has proven its willingness to play hardball with major opponents, slapping Canada's biggest phone company with a multimillion-dollar penalty and spurring its biggest airline to shelve a major venture.
Now it must review Maple Group's C$3.8 billion ($3.96 billion) hostile offer to buy Toronto Stock Exchange operator TMX Group (X.TO), which recently broke off a friendly deal to be taken over by the London Stock Exchange (LSE.L).
Maple's bid is conditional on getting clearance to integrate the Toronto exchange with its largest competitor, alternative trading platform Alpha. The combined company would control more than 80 percent of Canadian stock trading, according to Thomson Reuters data.
"No question the alarm bells are ringing for competition reasons over terms, access, control by the client group," said Finn Poschmann, vice president of research at the C.D. Howe Institute, a pro-business think tank.
The bureau, technically an independent law enforcement agency, will assess, among other things, whether the acquisition of Alpha would give the combined TMX-Alpha the market power to raise prices above competitive levels.
The watchdog has not been afraid to stare down powerful interests. Just last month Air Canada ACa.TO, the country's biggest carrier, and United Continental Holdings Inc (UAL.N) suspended a joint venture after the bureau filed an application to have it scrapped on antitrust grounds.
A day later, BCE Inc's (BCE.TO) Bell Canada, the country's biggest phone company, agreed to pay a C$10 million penalty after the bureau accused it of advertising prices that were not actually available to consumers.
"People often say that competition agencies never take on the big boys. That certainly doesn't seem to be the case in Canada at the moment," said Stan Wong, a Vancouver-based lawyer who served on Ireland's Competition Authority and now advises governments on antitrust issues.
The Competition Bureau also has a case pending against the Toronto Real Estate Board related to restrictions on the use of the Multiple Listing Service used by real estate agents.
Analysts attribute at least some of the watchdog's new toughness to the leadership of Aitken, who specialized in commercial, competition and trade litigation before joining the bureau.
She spent four years at the bureau focusing on mergers before rising to the top job in 2009 at the age of 42.
The commissioner, described by Wong as "extremely active", had a high-profile career before joining the bureau, working in both the private and public spheres and as a university lecturer.
She was part of the legal team that won a landmark victory against the bureau in 1999 on behalf of Superior Propane, which argued that the efficiencies of its merger with ICG Propane outweighed anti-competitive effects.
Aitken's organization, however, will face the large resources of Maple Group's legal team, which includes Davies Ward Phillips & Vineberg LLP, where Aitken was a partner more than a decade ago. The Maple consortium includes four of Canada's largest banks, five of its top pension funds and one of North America's largest life insurers.
A source at one of Maple's pension funds -- who could not be identified because he was not authorized to speak -- said that some major financial players had declined to join the Maple consortium for fear that its bid for TMX would not make it through the bureau.
The Competition Bureau does not tend to try to block deals outright, extracting concessions instead.
But it is not clear what concessions will satisfy those who say the Maple Group plan would turn back the clock in a "remutualization" that would return control of the exchange to its biggest users.
More than one legal source said the Maple bid for TMX would stumble on its plans to acquire Alpha. Maple also plans to integrate the bank-run securities clearing house CDS.
"A lot of the large banks have brokerage arms, so Aitken should be asking how they are going to be kept independent from the operations of the market," said Mihkel Tombak, a management professor at the University of Toronto, who warns that if the deal's optics are bad it could scare some investors out of Canada.
Maple argues that the existence of other alternative trading platforms in Canada and North America and new entrants to the market will keep prices competitive.
A source with the consortium, speaking to Reuters on condition of anonymity, said Maple has already had an extensive meeting with bureau officials and predicted clearance for the deal by September or October.
If Maple cannot sway the bureau on combining the exchange with Alpha, the source says the group has another option.
"In the event that we can't negotiate a transaction for one reason or another ... that does not necessarily mean that Maple can't waive the condition," he said.
(With additional reporting by Pav Jordan; Editing by Jeffrey Hodgson and Peter Galloway)