The nine Canadian pension funds and banks that want to buy TMX Group Inc. are taking their case directly to the company's shareholders with a hostile bid after the board rejected the $3.6-billion plan.
Their decision to formally present the offer to TMX investors just days after announcing their interest in buying the company - and mere hours after the TMX announced a vote on its proposed merger with London Stock Exchange Group PLC - underscores how quickly the battle is intensifying for the owner of the Toronto Stock Exchange.
The banks and funds, which have coalesced under the name Maple Group Acquisition Corp., quietly approached TMX almost two weeks ago, on May 13, with an offer that they said valued TMX at $48 a share. Two days later, on May 15, Maple Group went public with its proposal. It took just a week for TMX to respond with a rejection, saying the group's plan was too risky and vague.
Instead, TMX said it would stick with its plan to combine with LSE. Wednesday, those companies got court approval to hold a shareholder vote on June 30. Maple said that forced it to make a hostile bid.
"They have given us no choice but to make our offer available directly to TMX Group shareholders," said Luc Bertrand, a National Bank of Canada executive who is leading the Maple push. "If at some later date the board wishes to engage with us, we will be pleased to have that discussion."
The move sets up the prospect of a month-long battle that features two competing visions of Canada's capital markets. The TMX merger with LSE is being pitched by its proponents as a way for Toronto to grow in importance as a financial centre by aligning itself with an international partner. Maple Group's proposal is for a "made-in-Canada" solution that would keep more control of the stock exchange in domestic hands - but which may also lessen competition, since the major banks also own the TMX's top competitor, Alpha Group.
National, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Bank of Nova Scotia are the bank members of Maple Group. The pension funds are Canada Pension Plan Investment Board, the Caisse de dépôt et placement du Québec, Ontario Teachers Pension Fund, Alberta Investment Management Co. and Fonds de solidarité des travailleurs du Québec.
TMX is concerned that the Maple Group had not given enough detail on how the combined business would be run, and on the value of assets that the banks plan to contribute, such as the Alpha trading system. TMX also said there was too much risk for shareholders that competition regulators would challenge the Maple plan, and Maple had not provided enough information on how it would address competition concerns.
The maximum amount of cash in the Maple offer is $33.52 a share. The remainder is made up of shares in the company that will result from the planned combination of TMX with the Alpha system and the CDS Inc. clearinghouse, which is now jointly owned by the banks and TMX. However, there's no assurance that the transactions to roll in Alpha and CDS will be completed, nor is there any value ascribed by Maple to the assets.
"We are disappointed that the TMX Board declined our repeated invitations to engage us in discussions," said Mr. Bertrand. "Had they done so, we are confident that we could have addressed any questions or concerns."
In a reflection of the uncertainty about the value of the Maple bid, TMX shares have traded well below the $48 price. The stock closed Wednesday at $43.57.
The Maple bid is conditional on getting approval from competition and securities regulators to do the Alpha and CDS deals. The consortium said it will begin seeking such approvals "shortly." The bid will also be conditional on acceptance by holders of at least two-thirds of TMX's shares.
Stephen Boland, an analyst at GMP Securities, said that while there is a "valuation gap" created by the paucity of detail in the bid, that should not be an obstacle if Maple is determined to win.
"We do believe that there is validity to some of the board's objections, including the lack of financial data surrounding Alpha and CDS and future business plans," Mr. Boland said in a research note Tuesday. "However, we believe that these are issues that can be easily overcome with additional disclosure."
A spokeswoman for TMX did not immediately respond to a request for comment.