No MLSE sale means no top-up for TD

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The end of the auction for Maple Leaf Sports & Entertainment means that Toronto-Dominion Bank won't be getting any more money for the stake in MLSE that it sold to Ontario Teachers' Pension Plan.

Teachers', which owned the majority of MLSE, bought TD's 13.46-per-cent stake in MLSE in May. The price was never disclosed, but sources said that the deal included a top-up provision to protect TD in case Teachers managed to resell the stake at a higher value.

At first the deal seemed strange. Why was Teachers, which was trying to sell its MLSE stake, instead going the opposite direction and increasing its position in the company?

The idea was to consolidate ownership to make the stake more attractive to a buyer.

The deal took MLSE from three shareholders to two, leaving only Teachers' and minority shareholder Larry Tanenbaum. The plan was to make the negotiations with any buyer for Teachers' stake simpler.

One of the conundrums in the MLSE sale process was the fact that much of the value of the business, especially to a suitor from the media industry, comes from the rights to show Toronto Maple Leaf games on television. But under the multiple-shareholder structure, a buyer could purchase the Teachers' stake in MLSE and not be guaranteed the rights to the games. To protect minority shareholders, the rights had to be auctioned to the highest bidder.

That was said to limit the appeal of the Teachers' stake in MLSE to telecommunications and media companies like BCE Inc. and Rogers Communications , who would be most interested in controlling MLSE for the TV rights.

By cutting out TD, one advantage was that potential buyers would have only to negotiate with Mr. Tanenbaum to try to find a way around the rights issue.

Clearly, it didn't work.

While TD won't get a top-up, it did manage to exit an illiquid asset that tied up capital at a time when it had a motivated buyer. That still has to count as a win for the bank.