Competition and debt concerns have scuttled an ambitious proposal by a consortium of nine Canadian banks and pension funds to acquire the country’s biggest stock exchange.The group of four Canadian banks and five pension funds made a $3.7 billion counterbid to a proposed merger between the London Stock Exchange and TMX Group – the owners of the Toronto and Montreal Stock exchange.
TMX Group rejected the bid last week amid concerns it could diminish competition and stymie the exchange’s expansion ambitions.
Peter Block, a spokesman for the consortium, which is known as the Maple Acquisition Corporation, said it was disappointed that TMX Group had refused to enter into discussions with them and they were deciding their next move.
The attempt to acquire the exchange came amid concerns that the LSE offer was, in fact, a foreign takeover of the exchange and would move a measure of control over Canada’s financial markets offshore.
The Maple bid was promoted as an “All-Canadian” solution that would create a new group owned 60 per cent by the domestic pension funds and banks.
The pension funds involved were the Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, the Caisse de depot et placement du Quebec, Alberta Investment Management Co and the Fonds de solidarite des travailleurs du Quebec.
Their involvement would have constituted approximately 35 per cent of the bid, with banks making up the remaining 25 per cent. Existing shareholders would make up the remaining 40 per cent of the proposed new company.
In an effort to address potential conflict of interest no one shareholder in the consortium could own more than 10 per cent of the company.
Block said the Maple consortium believed the structure of the deal would provide for a range of interests and would be further strengthened by securities regulations that require half of the TMX board to be independent directors.
While not prepared to speak directly to why pension funds felt that investment was good for members, Block said the investors felt there was good value in TMX and its future growth potential.
“Each of the Maple investors is doing this because they see an opportunity to create significant value for their respective shareholders or plan beneficiaries by creating a stronger, more integrated and more valuable exchange business,” Block said.
“While the business decision regarding value creation is the paramount focus for each of the investors, we believe our proposal delivers a superior outcome for the TMX and all of its stakeholders.”
In a statement explaining its rejection of the Maple bid, the TMX board said it could raise substantial anti-trust risks with authorities, which may move to block the acquisition of Canada’s largest exchange.
It also raised concerns about the debt needed to finance the cash component of the deal, which they claimed would be a drag on the company’s ambitions to seek expansion opportunities abroad.