The Maple Group sweetened its offer for the TMX Group Inc. late Wednesday, hours after its rival bidder the London Stock Exchange Group PLC did likewise, upping the stakes in the battle for control of Canada's stock exchange.
A bidding war between the two sides has broken out as the clock ticks down to a critical June 30 vote at which the TMX's shareholders will weigh in on the LSE's offer, an offer that has the support of the TMX Group's board.
The latest salvo from the Maple Group - a consortium of 13 major Canadian financial institutions that are seeking to thwart the LSE's deal with the TMX and keep the exchange in Canadian hands - will see its offer raised from $48 to $50 per share. In addition, each of the 13 banks, pension plans, insurers and brokerages that make up the Maple Group have agreed to contribute more equity, enabling Maple to pay for up to 80 per cent of the TMX's shares in cash, up from 70 per cent.
The move came just hours after the LSE and TMX announced that TMX shareholders would receive an extra $300-million by way of a $4-per-share special dividend if their bid succeeds. As a result, the LSE offer now amounts to roughly $49 per share.
Sources close to the Maple Group said its members had already agreed to bolster their bid in the event that the LSE did so, and they were therefore able to pull the trigger quickly. The LSE had publicly signalled last week that it was weighing an increase in its bid. Part of the reason for Maple's speed, according to sources close to its offer, is that Institutional Shareholders Services Inc., a company that advises large shareholders on how to vote in these matters, was expected to weigh in soon.
ISS in fact is recommending the TMX-LSE deal to shareholders, according to reports Wednesday, citing the leveral in the rival deal.
"We recommend shareholders take the bird in hand and vote for the proposed merger-of-equals with the LSE," ISS is reported to have said.
In its announcement Wednesday, Maple once again urged the TMX's shareholders to vote down the LSE deal. "TMX Group shareholders must understand that if the LSE take-over proceeds, the opportunity to consider our superior offer will be lost," said Luc Bertrand, the head of Maple.
Even prior to Maple's announcement, the LSE's latest offer wasn't enough to make its merger plan with the TMX a clear winner. For one thing, the Maple offer includes a higher proportion of cash.
In addition, TMX investors had already said that the dividend would not be enough to shift the balance in favour of the merger with LSE. With only a week to go before the shareholder vote, some shareholders said the LSE had been too cautious and squandered an opportunity to deliver a knockout blow to Maple.
"I think they made a very big mistake," said Richard Fogler, head of Toronto-based Kingwest & Co., which holds TMX shares. "For very little money the [TMX and LSE]had the opportunity to really throw a monkey wrench into this and stop [Maple] and they didn't."
Tom Caldwell, head of TMX shareholder Caldwell Securities, echoed that. "If the deal goes through it's nice to get $4," he said. "But does it change the landscape? I don't think dramatically."
TMX and LSE have pitched their plan as a way for Canada to participate in a more-global exchange company, with opportunities to draw more listings and produce new products. Maple wants to consolidate in Canada first, by purchasing a rival trading system and the main stock clearinghouse, before looking at expanding abroad.
Because both proposals include stock, TMX shareholders have to decide which plan will produce a company they will want to own a chunk of in future.
TMX chief executive officer Tom Kloet said the dividend, which will also be paid to LSE shareholders, is intended to send a message of management's confidence in the business model they are proposing.
"We think we have a compelling offer on the table for our shareholders to consider, we think we've made it even more compelling today," he said in an interview.
TMX also tried to neutralize another perceived advantage for Maple. Under the original TMX-LSE proposal, unveiled in February, TMX shareholders would get a smaller regular dividend after the deal than before. But investors worldwide are hungry for investments that produce income, and the dividend reduction became an issue with some shareholders.
Maple's plan, in response, called for an unchanged dividend. On Wednesday, TMX and LSE said they too would maintain the TMX dividend rate.
The value of the merger proposal will depend on how LSE stock holds up in the days leading up to the vote. Some investors believe that LSE's share price is inflated by speculation that it won't get TMX and thus will end up a takeover target itself for a larger global exchange. If LSE shares fall, that will pull down the value of the transaction and make the vote even tighter.