London Stock Exchange Group PLC is counting on a last-minute wave of support from the Canadian financial community to help it win a crucial vote on its plan to merge with TMX Group Inc., the owner of the Toronto Stock Exchange.
LSE chief executive officer Xavier Rolet said he is expecting Canadian firms that support the LSE-TMX plan to come forward before Thursday’s vote to help him defeat a rival plan from a group of 13 Canadian banks, brokerages and investors known as Maple Group Acquisitions Corp.
As the days tick down to what promises to be a tight ballot, both Maple and LSE are pushing hard to win support. Mr. Rolet said he is expecting to get public backing from firms that prefer LSE and TMX's international link-up to the Maple proposal, which envisions focusing on consolidating the trading business in Canada before looking abroad.
“We are going to start to hear from some of the Canadian financial institutions that have international ambitions that understand that the Maple project is sending the wrong signal to international investors,” Mr. Rolet said in interview Sunday. He declined to name institutions.
Investors owning two-thirds of TMX shares have to approve the plan to merge with LSE for it go ahead. Maple has made its hostile bid for TMX conditional on the failure of the TMX-LSE merger plan. Both suitors tried to make their bids more attractive last week by adding cash.
The LSE CEO and his counterpart at TMX, Tom Kloet, plan to spend Monday in an intensive series of phone calls to try to sway investors. Mr. Rolet said that he has not so far seen very many proxies that would indicate how the vote is going.
He said he didn't expect that the vote would be postponed, even if it starts to look from early returns like LSE and TMX are not going to win.
“It's really time for investors to decide whether they like our project or not,” he said. “The cards are on the table. There's really no reason for that to happen, none at all.”
TMX's board on Friday rejected Maple's sweetened bid. While Maple increased its price and said it was open to paying TMX a break fee if Maple could not convince competition regulators to endorse its plan, TMX still said there were too many risks. Among the concerns, TMX pointed to what it said was a lack of detail on how Maple would obtain Competition Bureau approval and the amount of borrowed money in the deal.
The main focus on the competition issue has been on Maple's plan to combine TMX, which owns the biggest Canadian stock market, with Alpha Group, which runs the second-biggest stock trading system in the country. The idea is to cut costs and increase volumes, driving profits. But some analysts have raised the prospect that the combination would give Maple too much sway in the market, enabling it to raise prices or, at the very least, stop the steady decline in trading pricing that Canada has experienced in recent years.
Maple released a document Sunday laying out its arguments on the competition front in more detailed terms.
The group believes there is plenty of competition from other Canadian stock markets, which have the capacity to increase activity, and from U.S. exchanges. While only a fraction of all Canadian stocks are also traded in the U.S., they tend to be busy stocks like Research In Motion Ltd. that represent an outsized proportion of all Canadian stock trading. That means Maple won't be able to raise prices without losing market share in those key stocks, so that will keep all prices lower.
Also, should Maple put prices too high, other U.S. market operators might even expand into Canada. What's more, Maple argues that given that many of its principals run brokerages that pay a lot of trading fees, they would be unlikely to want to raise trading costs.
Even if there are concerns from competition regulators, Maple reiterated that it expects to find a solution.
“It is important to note that the Competition Bureau rarely opposes a transaction outright,” Maple said in the document. “Even in transactions where the Bureau identifies concerns that remain after a thorough investigation, it normally seeks to negotiate with the parties to find a solution that both addresses its concerns and permits the transaction to move forward.”
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