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The army of financial institutions fighting to buy TMX Group Inc. is growing to 13 from nine, balancing an added sense of legitimacy that comes from a broader consortium against the risk that the group becomes so big it is unwieldy.
Maple Group, as the financial institutions call themselves, has a takeover plan it values at $3.6-billion and is trying to bust up the TMX plan to merge with London Stock Exchange Group PLC. On Sunday, after days of speculation, Maple made it official that four new players are joining the consortium vying to buy Canada's main stock market operator.
The original nine, made up of four banks and five pension funds, will be augmented by members from different parts of the financial industry: Quebec's Desjardins Group is the country's largest financial co-operative; Manulife Financial Corp. is Canada's biggest insurer; and GMP Capital Inc. and Dundee Securities Corp. are independent securities firms.
The new additions help Maple counter any perception that the big banks in the consortium would have too much control over the country's stock and derivative markets should Maple succeed in its bid for TMX. Under the new structure, Toronto-Dominion Bank, National Bank of Canada, Canadian Imperial Bank of Commerce and Bank of Nova Scotia would together own 21 per cent of TMX. Under the old nine-member structure, the banks would have owned 25 per cent.
While the broader makeup may help on the public relations front, the real question is whether it helps with regulators.
Maple requires approval from securities regulators, including the Ontario Securities Commission, as well as the Competition Bureau, for its bid to succeed. The LSE-TMX plan requires approval from the federal Industry Minister, as well as from TMX shareholders in a key vote June 30.
"I don't expect the Competition Bureau or the OSC to be swayed by the [Maple]group's makeup, but I am not so certain of the politicians," said Doug Clark, managing director of research at brokerage ITG Canada.
The tradeoff for Maple is that the added members bring complexity to any deal.
Now, big decisions will require 13 approvals instead of nine. What's more, the new additions bring their own motivations to a group already marked by different aims.
The banks, generally speaking, are most interested in retaining Canadian control of the TMX, fearing that a deal with LSE could be the beginning of a hollowing out of Canada's financial sector.
For some of the big pension funds, such as the Canada Pension Plan Investment Board and the Ontario Teachers' Pension Plan, the main attraction is simply the ability to make money for their depositors, sources have said.
Among the newcomers, the spectrum of motivations grows even wider.
Desjardins highlighted the hope that Maple will be a better solution for Quebec, with "a real commitment to further Montreal's position as a centre of financial excellence."
Dundee and GMP, which finance many smaller companies, said that they believe the Maple plan is better for smaller enterprises.
For Manulife, "first of all, this is an excellent investment for Manulife that makes sense for our shareholders and our business," Don Guloien, the insurer's chief executive officer, said in a statement. "At the same time we hope that with Maple's support, the TMX Group can do an excellent job of serving Canada's capital markets - and grow internationally."
Having more members also has implications for some of Maple's plans should it succeed in acquiring TMX.
The group's plan is to then fold in the bank-backed Alpha alternative trading system, which currently is TMX's biggest competitor in stock trading, as well as the CDS Inc. clearinghouse, which is the main stock clearinghouse in Canada, to give TMX more heft. The prices of those acquisitions have yet to be determined.
Some of the Maple members, mainly the banks, have shares in those assets, while others do not. There is a potential conflict between Maple members who are owners and who want higher prices for their shares in Alpha and CDS, and the non-owners, who will want to keep the price low.
"The more names added, the more interesting the negotiations around the fair value of CDS and Alpha are going to be," said Mr. Clark of ITG.