Maple Group's bid for TMX Group Inc. is about to turn a year old, an anniversary that deserves no celebration.
The pending attempt by a group of big Canadian banks, brokerages, insurers and investors to buy the stock market operator has put TMX, the country's largest financial market operator, into suspended animation for nearly 50 weeks now and counting .
Maple's long and winding trip through the regulatory world, dealing with four securities regulators and an aggressive Competition Bureau that show little signs of co-operation, also does nothing for the reputation of Canada as an efficient place to do business.
To be sure, this is a transaction that requires intense regulatory scrutiny. The issues of how to protect investors if the bid goes ahead are manifold. It's clear that the regulators are doing their best to ensure that the merger won't hurt market users, and they are no pushovers. The regulatory strictures being contemplated are said by one person familiar with the transaction to be "onerous."
But a year, and counting?
Maple launched its attempt to win TMX on May 13 of last year. Now, Maple's backers have a week until the merger contract struck with TMX last year expires on April 30, and must be renewed.
That deadline gives Maple Group a chance to back away from the deal, and the investor group said on March 30 that those in the group are weighing "the progress of its discussions with securities regulators and the Competition Bureau in respect of the regulatory approvals" as well as progress on other areas of the transaction, and will only extend the bid "if satisfied."
For TMX, the issue is that the company, in the meantime, is strategically stuck. Maple's bid killed TMX's first choice, a merger with London Stock Exchange Group PLC. Now, after agreeing to a friendly deal with Maple, TMX is prohibited under the merger contract from doing any major acquisitions without Maple's approval.
As analyst Jeff Fenwick of Cormark Securities points out, opportunities are passing TMX by. Two prime assets that TMX could afford – a key consideration since TMX is not that big by world standards – have recently gone on the market.
The London Metals Exchange, the world's biggest metals marketplace, is deciding whether to go ahead with a sale. The price is expected to be in the neighbourhood of $1.3-billion (U.S.), easily doable for the TMX. Imagine the strategic possibilities of tying together the stock market operator with the biggest commodities presence and the largest metals marketplace.
But it doesn't appear TMX is in the running, though competitors such as CME Group, NYSE Euronext, and Intercontinental Exchange reportedly are.
LCH.Clearnet, the biggest clearinghouse in Europe, also went up for sale of late, and could have offered an opportunity for TMX to expand its clearing business in Europe. But LSE won that one, and is buying LCH.Clearnet for about $611-million.
There's a further reason to want to get a decision soon. TMX will be loaded up with debt under the Maple plan. Even if Maple fails, TMX is viewed as likely to borrow to fund a special dividend. Either way, there's going to be a further period of strategic inactivity as the merged company pays down the loans, and the company needs to get on with that.
The signals the process is sending about the regulatory environment are unkind. There is plenty of ammunition here for those would criticize Canada's system of 13 provincial and territorial securities regulators.
Four securities commissions must weigh in: those in Ontario, Quebec, British Columbia and Alberta. Ontario and Quebec are seen as the most important. So it would make sense for them to work together. But as recently as March, they were not, with Ontario Securities Commission head Howard Wetston telling The Globe and Mail at the time that he was open to the idea, once Ontario finished its review.
At a minimum, given planned public comment periods, it will be weeks yet before all the commissions rule.
And that doesn't even begin to address the Competition Bureau. There's little clarity at all on when a deal with the competition watchdog could come, if at all. The negotiations have been, by all accounts, gruelling.
One way or another, for the good of TMX, this has to end soon.
The worst outcome all along, as TMX first tried to merge with LSE and now tries to combine with Maple, has been TMX ending up alone. If it's alone after wasting a full year when other opportunities have disappeared, that's an outcome that's all the more unhappy.