TMX, LSE chiefs renew merger vows

By Vikram Barhat | June 27, 2011 | Last updated on June 27, 2011
3 min read

The exchange of claims and criticism between rival bidders for TMX Group further intensified as the chief executive of LSE Group, Xavier Rolet, accused Maple Acquisition Group of misrepresentation and questioned the credibility of information provided in its $3.7 billion hostile bid.

The latest round of hole-picking came at today’s investor and media conference call organized by TMX Group to discuss and defend the TMX-LSEG merger.

“One of the major misrepresentations that Maple has made is that the LSE share price today is somehow inflated by takeover speculation; we disagree,” said Rolet, explaining that it was indeed the result of last year’s performance, which saw a 65% before-tax increase in profit.

In another “misrepresentation”, Maple had accused LSEG of failing to fulfil promises made to shareholders of its merger partner Borsa Italiana in 2007. Rolet reacts by asserting that the Italian bourse has in fact prospered since that time and “has grown from little over 35% of the total revenue of the group two years ago to slightly in excess of 50% of the total group’s revenue today.”

In contrast to the hostile Maple offer, he said, LSEG has given clear undertakings that as a result of the merger, the regulatory framework will not change for the companies listed on the exchanges involved.

“The regulation and oversight will be exclusively maintained by Canadian provincial regulators,” said Rolet. “Maple, on the other side, has provided scant…frankly no information, about the regulatory process that it must go through.”

Most significantly, Rolet said Maple has not provided credible information on the huge obstacles in terms of competition bureau review for its proposed merger with Alpha, which will give it 90% of trading volume in Canada.

“The regulatory risk there is borne by TMX group and its shareholders as both the terms and quantum of the proposed reverse fee are still undefined, not to mention the huge conflict of interest as a small group of major traders become the owner of this market,” Rolet said.

In a rather thinly veiled reference to accusations of LSE’s takeover of TMX, he said this is not a merger of exchanges but “a pooling of ownership interests” as a result of carefully crafted genuine merger of equals that works on both side of the pond.

In contrast, he said, the Maple proposal is a late arrival and is an opportunistic, highly conflicted, imprecise proposal with considerable uncertainties and disruption for TMX shareholders.

Rolet’s arguments for the proposed TMX-LSE merger was supported by Tom Kloet, CEO, TMX Group, as he reiterated TMX Group’s continued support of the deal.

“Very simply put, under the Maple transaction the institution is being sold and 80% of current equity owners’ interest is being extinguished,” said Kloet.

The proposed transatlantic merger, by comparison, will allow shareholders to continue to own and prosper in the future growth of both companies, he added.

The absence of a break fee in the Maple bid, he said, was an indication that the rival suitor’s proposal was not serious.

These comments come close on the heels of recommendation made by third-party independent shareholder advisory entities for the proposed TMX-LSE transaction.

Vikram Barhat