The battle for control of TMX Group Inc. has turned into a game of fears, and the scariest outcome of all may be a TMX with no partner and no easy way to find one.
The hyperbole from the two rival bidders continues to escalate as investors approach Thursday, when shareholders of TMX have to choose whether to support London Stock Exchange Group PLC's plan to merge with TMX, or reject it in favour of the Maple consortium's hostile takeover bid.
LSE and its supporters say TMX shareholders and Canadians should be afraid of the Maple consortium's plan for TMX, with all its borrowed money and its potential to concentrate control of Canada's capital markets in the hands of a group of banks, brokerages and pension funds.
Maple says beware LSE, because it's a slippery slope once those foreigners have influence. Jobs will move out of Canada, as will control over the country's key capital markets.
With those bogeymen dominating the discourse, almost nobody's talking about what happens if TMX ends up alone at the end of all this. Despite having two bids on the table, that's still a very real possibility. Whichever suitor wins shareholders over on Thursday may still fail to get the approval of regulators.
The one person who hasn't played that fear card is TMX chief executive Tom Kloet, because he's the one that has to deal with the reality that he could have to go it alone.
If TMX ends up with no partner, it will just soldier on with its business plan, Mr. Kloet has said more than once. He would be crazy to say anything else. Arguing that TMX would be in big trouble without a partner would be very dangerous in the event that TMX does not find one.
Still, there's a reason that he and the TMX brain trust have spent much of the past 18 months in merger talks with one potential partner or another. First it was Nasdaq OMX in the earlier part of 2010. When that didn't pan out, LSE arrived on the scene.
A cynic might accuse Mr. Kloet and the TMX board of just wanting to sell the company to cash out, but if that's the case, championing a minimal-premium, all-stock merger is a funny way to do it. So the logical conclusion is they believe they need a deal, and the sooner the better.
The reality is that TMX is in a strategic box, and it needs to find a way out.
Securities regulators have encouraged greater competition, in the name of lower prices for users and more innovation. It has worked, but at the cost of a weakened TMX. For now, most of the damage is in stock trading, but competitors are targeting listings and potentially even derivatives trading. Steve Boland, a GMP analyst who covers TMX, has said the company has a good outlook for two years and then things get murky. (Since Mr. Boland's report, GMP has joined the Maple consortium.)
The competitive landscape isn't news. What is new is how limited TMX's ability to respond is. Politicians in Ontario and Quebec, who hold a lot of sway over the company's future because the provinces are key regulators, have indicated they are not comfortable with a deal that gives away any hint of local control - so selling to a large foreign player is off the table.
That leaves outright takeovers by TMX as a possibility. But as a small player whose shares trade at a discount to many other exchanges, TMX doesn't have many potential targets. The discount may be even deeper after all this is over because a TMX that can't be bought will trade with an even lower multiple. That further limits TMX's options.
There are certainly TMX shareholders who say they are happy if the outcome is no deal. They say they can just hang on to the stock and enjoy the dividends. There are many investors in this camp, judging by the e-mails and comments on Globe and Mail stories.
It's just status quo, they argue. Except that it's not. It's a weaker TMX that's even more cornered.
The Ontario Teachers' Pension Plan, before joining Maple, actually came out in support of the LSE deal for precisely this reason. The pension fund said in a March statement that TMX "risks becoming irrelevant entirely if it cannot compete in the global marketplace through a merger with other exchanges."
That's not a good outcome for shareholders or Canadians.