London Stock Exchange (LSE) chief Xavier Rolet welcomed a decision by the LSE’s merger target TMX Group to reject a rival takeover bid, clearing a key hurdle in a deal it needs to compete globally.
The Toronto stock exchange operator’s block of the Maple Group — which is offering a premium to the LSE’s US$3 billion bid — is a crucial step for Rolet’s most ambitious plan so far to secure the British stock exchange’s independence.
“Once people had a chance to sit down and consider the Maple scheme of arrangement, there were a number of factors that appeared unattractive,” Rolet said in an interview.
“At the same time we are pleased that the merits of our merger proposal have been fully understood,” he said.
TMX emphatically rejected the home-grown approach by the Maple Group in a strongly worded statement late on Friday, citing concerns over leverage, a lack of information and regulatory hurdles.
Industry sources had earlier said the TMX might well use similar arguments if it sought to fend off the Maple Group bid. TMX also affirmed its commitment to a merger with the British exchange.
“Our deal does not require leverage, unlike the Maple plan which would have higher levels of leverage than even NASDAQ OMX,” Rolet said in the interview.
The pledge is a victory for the LSE over Maple, which is banking on nationalistic sentiment to the largest Canadian exchange falling into foreign hands, but leaves the LSE to convince regulators and politicians to back it.
“Ours is a strong deal and we took more than six months to review the legal and regulatory aspects before we announced the agreement,” Rolet said. “There are some national issues, but what matters is the law and we believe we have structured a strong proposal.”
However, the US$3.6 billion offer by the Maple Group — backed by some of Canada’s largest banks and pension funds — could still easily derail the LSE bid, which needs regulatory approval, and is not expected to close before late this year.
In a sign it could consider taking its bid straight to shareholders in a hostile move, the Maple Group replied with a statement that said it would “determine our next steps in due course,” after the TMX’s rejection of its bid.
The deal has added importance for the LSE because two of its largest rivals — Deutsche Boerse and NYSE Euronext — look set to seal a US$10.2 billion merger after NASDAQ OMX dropped its rival bid.
This left NASDAQ out in the cold and sparked speculation that the US exchange might make a third stab at buying the LSE, having failed in 2006 and 2007, if the British exchange does not see off Maple and merge with TMX.
The tie-up would cement the LSE’s position among the world’s trading heavyweights. It is the world’s third-largest stock exchange by value of listings, and the merger would take it to second position, behind NYSE Euronext.
On the trading side, the combination of LSE, which has traded US$1 trillion of shares this year, with TMX, which has done about US$600 billion, will take the LSE group from sixth in the league to third, behind NYSE (US$7.1 trillion) and NASDAQ (US$4.1 trillion), World Federation of Exchanges data show.