Hoping to sway undecided shareholders, TMX Group unveiled a last-minute letter signed by Bay Street heavyweights who support its combination with London Stock Exchange Group.
The letter's 11 backers include CI Financial Corp. chairman Bill Holland and the heads of independent brokerages Raymond James Ltd. and Haywood Securities Inc., all of whom expressed concern about Maple Group Acquisition Corp.'s hostile bid for TMX. The group worries the deal would create a national monopoly run by the country's biggest financial players.
"After careful review, it is clear to us that the proposed TMX/LSEG merger protects Canadian regulatory sovereignty, champions Canadian executive management, and maintains competition and a level playing field," the group said in an open letter released yesterday.
"In contrast, the Maple Consortium has proposed the creation of a national monopoly in which our Canadian exchanges would be owned and managed by many of their most powerful participants, and thus would be burdened by significant conflicts."
TMX followed the letter with a lengthy investor conference call on Monday afternoon, echoing Maple's own public relations blitz on Friday. Yet with just a small window of time left to fight back, it is too hard to predict whether the last-ditch effort will be effective.
During the call, TMX chief executive officer Tom Kloet characterized Maple Group's bid as nothing more than a leveraged recapitalization that manufactures better earnings by tacking on more debt. Maple's bid promises 79 cents more in earnings per share, but most of that comes from adding debt to TMX's balance sheet and then using that money to retire shares.
The higher earnings per share can be misleading. If earnings simply stay the same while the number of shares decreases, earnings per share will rise even if the company does not grow. (Maple's offer proposes to decrease the number of TMX shares outstanding from 74 million to 54 million.)
On the other hand, TMX's proposes annual cost savings worth $56-million after two years, and additional revenue of $160-million annually after five years from such strategies as more cross-listings.
Maple also expects additional cost savings from wrapping the Canadian Depository for Securities into its deal, but on Monday Mr. Kloet stressed once again that he, too, would do the same. "CDS … would be a welcome addition to the TMX Group. It's been that way for quite some time. Under my tenure here I've had several proposals on it. There were proposals by my predecessor, and there were proposals by my predecessor's predecessor," he said.
Mr. Kloet is not alone in his criticism of Maple's debt load. Two key shareholder advisory firms, Glass-Lewis and Institutional Shareholder Services, both recently argued in favour of the TMX-LSE deal in part because they consider Maple's debt level worrisome.
Maple Group representative Luc Bertrand pushed back on this issue during his visit to The Globe and Mail's editorial board Friday. "Sure, today we're being criticized by [LSE CEO Xavier Rolet]as being the most leveraged exchange, and that will hinder growth," he said. "The fact is, this thing is going to spin off a lot of cash."
On Monday, Mr. Kloet agreed, but said: "The central point in question here is who should get those cash flows," shareholders or the lenders.
With files from reporter Boyd Erman