Pedestrians walk past the NASDAQ MarketSite November 20, 2006 in New York City.Spencer Platt/Getty Images
There's a distinct possibility that a big American stock market like the Nasdaq will take a run at acquiring TMX Group before a lone, all-Canadian bid for the operator of the Toronto Stock Exchange can come to fruition, according to industry observers.
The demise of a planned merger with the London Stock Exchange has left Maple Corp.'s hostile $3.8-billion offer the only one on the table, but a new offer from an U.S. exchange operator would likely stand a greater chance of securing shareholder and regulatory approval, says Carleton University business professor Ian Lee.
"If there is going to be an acquisition, then I think it will be an American acquisition by Nasdaq, or it will remain as a stand-alone," Prof. Lee said Wednesday in an interview.
Under the Maple bid, the group's 13-member consortium of Canadian banks and pension funds would effectively control 80 per cent of stock trading in Canada, raising questions about access and competitive pricing for other traders.
Prof. Lee said he believes that ownership issue is too thorny to survive the Competition Bureau review currently under way or pass muster with shareholders.
"I don't think the Maple bid is going to go through," Prof. Lee said.
"I wouldn't be shocked at all if Nasdaq came out and tried to buy it."
A planned merger between TMX group and the LSE died last week when it failed to garner enough shareholder support. Now the TMX will either maintain its independence, be acquired by Maple or accept a bid from a third party.
That bidder would have to be big enough to beat the multibillion-dollar offer by Maple and would have to survive TMX Group shareholder Thomas Caldwell said he is opposed to the Maple deal because it would allow Canadian banks – some of the Toronto Stock Exchange's biggest traders – to own a large part of it.
Mr. Caldwell, who is head of Toronto investment manager Caldwell Securities, said he doesn't think a Maple-owned TMX Group would have the scale to compete for listings in the U.S. or around the world in an industry that is undergoing a wave of cross-border consolidation.
"They say we can expand and create a Canadian champion – I don't think so. Every time the banks go to America they've been handed their head."
An American exchange like Nasdaq is likely to be one of the only bidders with pockets deep enough to take on the large Canadian banks, he said.
Nasdaq OMX Group Inc. , which recently dropped a hostile bid for the New York Stock Exchange, could step in with an offer to acquire its smaller northern neighbour, though it is also reported to be a potential buyer for the London Stock Exchange.
TMX shareholders have until Aug. 8 to tender their shares to Maple Group's offer, but that bid still faces regulatory obstacles because several of the Maple consortium members partly own Alpha Group, a stock exchange that competes with the TSX.
TMX Group is in the process of reviewing the Maple bid, which it previously rejected when it was under a contractual obligation to dismiss any rival bid not considered superior to the $3.7-billion offer from the LSE Group. The firm said it could not comment further.
The failure of the TMX-LSE bid can partially be attributed to a wave of anti-foreign ownership sentiment, fuelled in part by Maple's argument that the LSE merger, actually a takeover, would hurt Canada's capital markets.
There were also enough high level officials who questioned whether the deal would mean foreign control to scare other investors into believing the deal would be quashed at the regulatory level.
But Canadian shareholders and regulators would be warmer to a deal with an American firm because the countries are so "intimately interconnected," Prof. Lee said.
"I think we would be less fearful of a Nasdaq buy-in than say, the London Stock Exchange, which is a long way away and we don't have that kind of influence with the European Union that we do with the United States."
Such a deal could also run into foreign ownership criticism, but Prof. Lee believes power players would be leery about coming out against another foreign acquisition for fear of sending a signal that Canada is not open for business.