The Canadian banks leading a $3.6-billion bid for TMX Group Inc. spent weeks laying the groundwork for their offer, trying to pre-empt a government backlash.
The four banks, attempting to derail a merger between TMX and London Stock Exchange Group PLC, knew their bid to buy the parent of the Toronto Stock Exchange would create a near monopoly of trading in Canada, since they also own the smaller Alpha exchange, a rival to the TSX.
The banks, which have been tripped up by Ottawa and the provinces in the past on proposed deals, made a deliberate decision to reach out to government officials and various regulators early, in an effort to smooth their path – so early, in fact, that officials were given a heads-up even before all of the members of the consortium were nailed down.
That’s because, while they plan to sell their offer on its merits, they also hope to tap into a sense of nationalism in Canada and drum up opposition to the LSE merger. The banks have learned that having government on side is vital.
By the time the final details of the bid were made public Monday, the consortium had received signals that provincial governments are uneasy enough with the rival LSE bid to make a Canadian-led push palatable.
Dubbed the Maple Group Acquisition Corp., the bid is being led by National Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Canadian Imperial Bank of Commerce.
The banks have recruited the backing of five of the country’s biggest pension plans: Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, Alberta Investment Management Corp., Caisse de dépôt et placement du Québec and Fonds de solidarité des travailleurs du Québec.
After attempting to protest the deal to the Ontario government in January, National Bank vice-chairman Luc Bertrand said several of the financial institutions decided to take matters into their own hands and assemble a rival bid. “Sure we can go out and say we don’t like the deal, which we did,” Mr. Bertrand said in an interview. “But at the end of the day, so what?”
At $48 a share in cash and stock, the offer is a 24 per cent premium to the $40 price of the proposed LSE merger with TMX. However, even with that premium, and the backroom support of provincial governments, Maple Group faces a significant hurdle: It must convince the federal Competition Bureau that the bid is acceptable, even though it would eliminate the rivalry between the two Canadian exchanges.
The watchdog make its own independent review of the proposal, which will focus on whether the deal would create an unfair market dominance for the combined entity.
The banks created Alpha in 2008 because of their concerns that the TSX had no competition on the fees it set for trading. There are worries on Bay Street that consolidation of the Canadian exchanges would push up costs for using their services.
But The success of the deal, Mr. Bertrand and others said, is not predicated on the banks and pension funds squeezing more fees out of clients. Rather, cost savings and the ability to compete more effectively with U.S. exchanges that are eroding Canadian business will be where the group makes its money from the deal. Competition from small and large American exchanges have cut the amount of trading on some of Canada’s biggest stocks. Mr. Bertrand said as much as 80 per cent of trading in Research In Motion Ltd., for example, takes place on a variety of exchanges in the U.S.
