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LSE's bid on TMX Group on knife edge

London - The London Stock Exchange faces a nail-biting fight for Canadian peer TMX Group after rival bidder Maple trumped the LSE’s sweetened offer with counterbid worth $3.9bn.

The British bourse had hoped to win over Canadian TMX shareholders by boosting its agreed all-stock bid - currently worth $3.3bn - with a $673.5m special cash dividend. But Maple took just hours to retaliate.

Unashamedly nationalistic Maple, which is backed by 13 of Canada’s largest financial firms, nudged its unsolicited cash and stock bid up by C$2 per share to C$50 a share, putting a value of C$3.8bn ($3.88bn) on the deal. That is ahead of LSE’s C$44.90 per share offer.

TMX said it would review the new Maple bid.

With just one week to go before crucial shareholder votes on the LSE’s deal, Chief Executive Xavier Rolet is battling to beef up the London bourse’s scale and clout to fight off incumbent rivals, nimble new market entrants - and predators.

ISS, a well-respected proxy advisory firm with influential shareholder clients, on Thursday recommended the LSE merger, noting it would yield cost savings, new issuer listings and beef up the combined group’s global position.

Nevertheless, market experts watching from the sidelines believe Rolet has played his last hand and, given he has to win two thirds of the Canadian investor vote next week, one banker said the prospects of a successful TMX deal “did not look good”.

TMX investors quizzed by Reuters over the last week have tended to prefer Maple’s offer. TMX’s share price hit a year high of C$45.69 on Thursday, but this is well short of the Maple bid, reflecting market uncertainty.

Analysts in London said the outcome of the June 30 vote was, at best, finely balanced.

“I suspect the LSE shareholders will approve the deal on June 30 - whereas it is a close call which way the TMX shareholders will go,” said Numis Securities analyst James Hamilton.

Cash value

Analysts said the LSE’s special dividend - 84.1 pence per LSE share and C$4.0 per TMX share - added a welcome element of cash to the bid. But it did not raise the offer and also meant the company would have to borrow to pay for it.

“The LSE dividend has nothing to do with the value of the deal, rather the dividend means only cash for shareholders and a more leveraged business. The tax benefit is the only way the dividend makes the offer more attractive,” Hamilton said.

The London and Canadian exchanges say their tie-up will create a transatlantic stock trading powerhouse with a particular specialization in minerals and raw materials companies, the existing strength of the Toronto Stock Exchange.

But critics say it would propel a key Canadian firm into foreign hands, and Maple is pitching itself as a “made-in-Canada” solution.

A spokesperson for the LSE declined to comment on Thursday. But LSE shares were broadly flat at 953.5 pence, bucking a weaker FTSE 250 index. Analysts have long said the robust LSE price reflects market hopes the bourse will fail in Canada and see predators circle.

The exchange spent years fending off the unwanted attentions of bidders before Rolet took the helm just over two years ago.

“If the LSE don’t get TMX then someone’s probably going to come and bid for them,” said one of the LSE’s 50 largest shareholders.

US-based exchange operator Nasdaq OMX, which failed to derail an agreed merger between Deutsche Boerse and NYSE Euronext , has twice tried and failed with hostile LSE takeovers in the past five years.

Under the London offer, TMX shareholders will receive 2.9963 LSE Group shares for each TMX share, leaving LSE shareholders with control of 55% of the new company and TMX shareholders with 45%.

The LSE bid needs approval from provincial regulators and from federal Industry Minister Christian Paradis, who must determine if the offer is of net benefit to Canada. The Maple bid, which hinges in part on a secondary merger with another domestic exchange operator, also carries anti-trust risk. ($1=.9783 Canadian Dollar) ($1=.6162 Pound)

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