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Canadian stock exchanges to be merged

Friday, July 06, 2012    

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CANADA'S competition watchdog and Ontario's securities regulator on Wednesday approved a CA$3.8-billion ($330-billion) bid by a group of Canadian financial institutions to take over the operator of the Toronto Stock Exchange and merge it with two other exchanges.

Maple Group Acquisition Corp will be permitted to operate a combined exchange and clearing group involving the TMX Group, along with the alternative Alpha Trading Systems and the Canadian Depository for Securities.

TMX and Alpha control some 85 per cent of all stock trades in Canada, raising some concerns that the merger would give too much power to a single market and clearing operator controlled by Canada's big financial institutions.

Canada's Competition Bureau said that despites its concerns, it will not challenge Maple Group Acquisition Corp's proposed takeover of the TMX Group. The Ontario Securities Commission also gave its approval. However, the proposed takeover and mergers remain under review by the British Columbia and Alberta securities commissions.

Competition Commissioner Melanie Aitken said the bureau's serious concerns with the proposed transaction have been addressed.

"The measures contained in the (Ontario Security Commission's) final recognition orders materially change the regulatory environment sufficient to substantially mitigate the bureau's competition concerns," she said.

Both the exchange and clearing group orders are subject to terms and conditions to provide what the Ontario regulator described as an "enhanced oversight programme".

The orders have been reviewed and agreed to by all members of Maple Group, the consortium said in a statement.

Maple Group spokesman Luc Bertrand said the approvals were "a very major milestone" for the consortium of 12 Canadian banks, pension funds, brokerages and insurers leading the bid.

"My understanding is that it was a lot of work between the bureau and the (Ontario Securities Commission to) satisfy that post-transaction there would be a regulatory structure that addresses the bureau's concerns," he said.

TMX CEO Tom Kloet said the recognition orders would provide enhanced regulatory oversight "and the foundations upon which we will build an efficient and globally competitive exchange group".

Quebec's securities regulators, the Autorite des marches financiers, previously published final recognition orders with respect to Maple's proposed acquisition of TMX Group and Alpha.

The recognition orders follow comprehensive reviews that included public hearings and public comment periods.

The Competition Bureau said measures contained in approvals by the provincial securities regulators substantially mitigate its concerns.

Under the deal, Maple's offer to acquire a minimum of 70 per cent and a maximum of 80 per cent of the shares of TMX Group for CA$50 in cash per share is open until 5:00 pm EST (2100 GMT) on July 31 unless further extended or withdrawn.

The Maple consortium has already extended its deadline several times as it awaits full approval for the plan that would see it control as much as 90 per cent of trading activity in Canada.

The offer is part of an integrated acquisition transaction, valued at approximately CA$3.8 billion, to acquire 100 per cent of TMX Group shares.

The investors in Maple Group Acquisition Corp include 13 of Canada's largest financial heavyweights including the Canada Pension Plan Investment Board, the Ontario Teachers' Pension Plan, several banks, and Manulife Financial.

Maple said investment dealer GMP Capital Inc has agreed to withdraw from the investor group due to a requirement by Ontario and Quebec regulators that Maple's board include no more than 50 per cent representation from the consortium's shareholder group.

Maple Group is the only suitor remaining to buy TMX Group after a proposed merger with the London Stock Exchange was killed because there was not enough TMX shareholder support.

Maple Group is the only suitor remaining to buy TMX Group after a proposed merger with the London Stock Exchange was killed because there was not enough TMX shareholder support.

Thomas Caldwell, chairman of Caldwell Securities Ltd, which owns a stake in TMX Group, said he is pleased that the proposal is closer to completion, but that it "has taken an incredibly long time".

"The salient points of this deal were known within the first week, and I do think it's ironic that securities regulators who demand full and timely disclosure from their registrants took a rather long view of this," he said in an interview.

"I don't think it's any secret — we preferred London to this, but we prefer this to nothing."

The TMX has said it will continue its expansion plan, whether it comes to an agreement with Maple, or moves forward on its own.

The TMX has said it will continue its expansion plan, whether it comes to an agreement with Maple, or moves forward on its own.

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