The London Stock ExchangeANDREW WINNING
Forget Canadian jingoism. The all-Canadian bid for the TMX is a compelling offer, one that could leave the London Stock Exchange's bid, and the LSE itself, in tatters.
The competing bid from Maple, a consortium composed of Canada's leading pension funds and banks, has several distinct advantages. The first is that it offers a fat premium. Maple's offer is worth about $48 a share compared to the LSE's offer, valued at about $39 (TMX shares closed Friday at just under $42).
The second is that Maple's bid includes cash as well as Maple shares. The LSE's offer is all paper.
The third is that Maple's bid, if it were to succeed, would effectively neutralize the biggest threat to the TMX's trading business -- Alpha Group -- a rival exchange platform owned by Canada's banks. Maple would roll Alpha into the new TMX, which would also include CDS, the Canadian clearing, depository and settlement house.
Whether the regulators would approved such a horizontally and vertically integrated group is another question. But the LSE's offer for the TMX also faces considerable regulatory hurdles.
What are the LSE's options? At this point, they look slim, especially since Maple has national sentiment in its favour. Note that Ontario finance minister Dwight Duncan immediately endorsed the Maple proposal.
The LSE must decide whether it wants to risk a bidding war. That is not out of the question, but it is one that LSE boss Xavier Rolet would not take lightly. He would be taking on some of the world's most powerful funds and banks, including TD Bank and Ontario Teachers' Pension Plan, that are backing Maple.
Raising the bid substantially would also risk earnings dilution and make a mockery of the LSE's claims that the London-Toronto merger is a "merger of equals." Under the existing proposal, it would own 55 per cent. Any bump in the bid would obviously boost its ownership position.
Buying time must be Mr. Rolet's plan. The LSE put out a statement Monday morning reaffirming its commitment to buy the TMX. The two bourses will no doubt talk up the cost savings and other synergies, but that may not go very far in the face of the fat premium offered by Maple.
In truth, things do not look good for Mr. Rolet. The Frenchman's first takeover foray as LSE chief is coming off the rails. "It's a humiliation for him," said Tim Stocks, the leader of the financial institutions practice at London law firm Taylor Wessing. "This risks leaving London as a relatively minor player on the world stage, creating a disconnect between London as a global financial centre and the size of the LSE itself."
If the LSE's bid for the TMX' fails, the LSE will have "target" written all over it. Note that LSE shares were up almost 3 per cent this morning as shareholders apparently took the view that the bourse might soon be vulnerable to a takeover.
The obvious bidder for the LSE would be Nasdaq. It wanted to buy the LSE in 2007. Now it's trying to gatecrash the proposed merger of NYSE Euronext and Deutsche Boerse. If that doesn't work, Nasdaq might be happy to snap up the LSE. One way or another, the LSE seems destined to become part of a larger group.