Banks, pension funds offer to buy TMX Group

A group of nine Canadian banks and pension funds have offered to buy the TMX Group Inc., attempting to break up a planned merger between TMX and London Stock Exchange Plc with a richer offer that values the owner of the Toronto Stock Exchange at $3.6-billion.

The bid for all of TMX, which includes all but two of Canada’s six biggest banks, is worth $48 a share, the bidding group said in a release, which is about 20 per cent higher than the LSE bid.

The banks behind the offer are Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, National Bank of Canada and Bank of Nova Scotia. The pension funds are Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, the Caisse de dépôt et placement du Quebec, Alberta Investment Management Co. and the Fonds de solidarité des travailleurs du Quebec, or FTQ.

The consortium came together amid concern that TMX’s planned merger with London Stock Exchange Group would be bad for Canada, shifting a measure of control of the country’s financial markets offshore. People familiar with the proposal say the banks and pension funds believe that by combining some key assets they own with TMX, the company can be made stronger and more valuable, and then can be a buyer of foreign exchanges.

Because of their combined heft, the banks and pension funds can put together a deal worth substantially more than the London Stock Exchange arrangement. The value of the LSE deal fluctuates, because it’s an all-stock merger, but it’s about $40 a share at current prices.

The bidding consortium’s offer is mostly cash: TMX shareholders would get $33.52 per share in cash, plus three-tenths of a share in a holding company that would own TMX Group. Collectively, existing TMX shareholders would still own 40 per cent of the exchange.

The banks would own 25 per cent of the company and the pension funds 35 per cent. No single shareholder would own more than 10 per cent of the company.

The plan to keep TMX locally owned drew a cheer from one of the most vocal critics of the TMX-LSE deal, Ontario Finance Minister Dwight Duncan. He said in an interview that the Canadian-led alternative proposal for TMX Group attests to the strength of Canada’s financial-services sector.

“I’m very excited,” he said. “Our financial services sector is the strongest in the world and this just proves the value and the worth of the stock exchange and the leadership role we can take in the world.”

The proposed bid led by the Canadian banks and pension funds addresses many of his concerns, said Mr. Duncan, who has described the Toronto Stock Exchange as a “strategic asset” in a strategically important industry. The Finance Minister has also suggested the LSE was in fact a takeover of TMX Group and not a “merger of equals” as billed by executives of the two companies.

In the bank-led offer, “we’ve got substantial financial players from Quebec, from Alberta, from Ontario,” Mr. Duncan said, “so it’s truly a Canadian bid.”

The bid from the banks and pension funds will be made by a new company called Maple Group Acquisition Corp. In addition to cash, the banks and funds would attempt to merge their stakes in the country’s stock clearing system, CDS Inc., and a rival trading system, Alpha Group, with TMX as part of Maple.

However, the deal would still need approval from multiple regulatory bodies, including the securities commissions of Ontario, Alberta, Quebec and British Columbia, and would have to satisfy the federal Competition Bureau.

“As like-minded investors, we believe there is an opportunity to create significant value by capitalizing on TMX’s strengths to build a stronger integrated exchange and clearing group – and by doing so, to secure the future growth and ongoing integrity of the Canadian capital markets,” Luc Bertrand, vice-chairman of National Bank Financial Group, said in a statement on the group’s behalf.

“We believe our offer constitutes a superior proposal under which shareholders would receive cash, plus the opportunity to continue to participate in the company’s ongoing growth. We welcome the opportunity to work with TMX’s board and management to capture the benefits of our proposal for the company and all of its stakeholders.”

TMX confirmed in a release on Saturday that it has received the offer from a group of financial institutions, which it did not name. TMX said the proposal “is not binding and was prepared for discussion purposes.” The acquisition would be paid for in cash and shares, TMX said, but the exchange company didn’t give a price. The company said it would review the proposal.

TMX spokeswoman Carolyn Quick declined to comment further.