Patriotism at Work.

Some of Canada's biggest financial players are competing with the London Stock Exchange for control of the Toronto Stock Exchange, owned and operated by the TMX Group.  A consortium of Canadian banks and pension funds launched a $3.7 billion offer for TMX Group in a bid to create a Canadian champion in the exchange-consolidation scramble.  

The Canadian consortium, which is calling itself Maple Group Acquisition Corp., includes the bank-owned investment dealers of TD Bank, Bank of Nova Scotia, CIBC and National Bank of Canada - 4 of Canada's largest banks.  Big Canadian pension funds - including Quebec's Caisse de dépot et placement du Quebec, Fonds de solitarite FTQ, Alberta Investment Management Corp., Ontario Teachers' Pension Plan Board, Canada Pension Plan Investment Board - are also part of the consortium.

For each share of TMX, Maple is offering C$48 in cash and shares of Maple.  Based on Friday's closing prices, the LSE-TMX merger agreement values TMX shares at just under C$39. TMX shares closed Friday just under C$42.  The Canada-based bid proposes a combination between TMX, CDS Inc. (a Canadian clearing, depository and settlement house) and Alpha Group (a rival exchange platform owned by Canada's biggest banks).  The consortium says the new entity would be an integrated trading and clearing exchange for all sorts of instruments.  That will benefit TMX shareholders, Maple said in its statement, while boosting "Canada's standing as a global financial centre of excellence."

    Regulatory Issues.   If the new deal were to be pursued by TMX, it would be complex and could face regulatory and anti-competition challenges focused around Alpha Group.  The four banks bidding for TMX are among the owners of Alpha.  Alpha and TMX's Toronto Stock Exchange account for the large majority of stock trading in Canada.  Two other bank owners of Alpha - RBC and BMO - are advisers in the LSE-TMX deal, and aren't part of the consortium.

    LSE Always Has Nasdaq to Merge With.   Should the London Stock Exchange fail in its bid to acquire the Toronto Stock Exchange, look for Nasdaq to approach the LSE.  At least that's what some exchange advisers are saying.   [C-I Note:  Makes sense.]

[WSJournal, 5/17/11]