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TMX, LSE kill merger deal

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The proposed merger of TMX Group Inc. (X-T) with London Stock Exchange Group PLC is dead.

TMX said a majority of the votes cast by proxy before Wednesday’s deadline in fact supported the deal, but it was clear the two exchange operators wouldn't get the two-thirds required in a vote scheduled for Thursday.

TMX Group Chief Executive Officer Tom Kloet said the company will now focus on other alternatives, including a rival bid from Maple Group Acquisition Corp., a collection of Canadian financial institutions and pension funds. The bid by Maple, worth about $50 a share, had been conditional on the defeat of the TMX-LSE merger.

“The TMX Group management and board believe that the TMX-LSEG merger would accelerate our business strategy and create shareholder value, while enhancing the performance of Canada’s capital markets,” Kloet said. “Although we will not join forces with LSEG, our business is strong and I have enormous confidence in the continued success of our company.”

The merger required support of two-thirds of TMX shareholders who were scheduled to vote on the deal in Toronto. However, sources familiar with the merger confirmed that only 54 percent of shareholders who had already voted by proxy have approved the transaction. Roughly 70 percent of shareholders voted by proxy.

In a statement, the LSE said it agreed with TMX to end the bid. The LSE added that its “own shareholder meeting showed an overwhelming majority in favour of the recommended merger.”

“We are clearly disappointed that, despite a majority of both LSEG and TMX Group shareholders voting for our recommended merger, the two-thirds approval threshold for TMX Group shareholders was not met and hence the merger will now not proceed,” said LSE chief executive Xavier Rolet. “Our group is in good shape and financially robust. Whilst the merger with TMX Group was an exciting opportunity for LSEG, we continue to see other significant growth opportunities across our well-positioned capital markets, information services, technology and post trade businesses.”

Speaking on behalf of Maple's investors, Luc Bertrand said, “We are very pleased with the support our offer received from TMX Group shareholders. We commend the LSE and TMX for their efforts, and hope we may now engage in a positive dialogue with the TMX Group board. We genuinely believe Maple's vision represents the best way forward for TMX Group and the Canadian capital markets. Maple will continue to diligently pursue receipt of all necessary regulatory approvals and will continue to engage in a constructive dialogue with stakeholders from across the spectrum.”

Ontario Finance Minister Dwight Duncan also welcomed the announcement.

“I think this is Canadians asserting themselves,” Duncan told reporters at the Ontario legislature in Toronto. “What I find particularly appealing about the circumstance here is that it was the shareholders themselves who did not accept the LSE bid. This was not rejected by government.”

Duncan was one of the most vocal opponents of the proposed deal between TMX Group and the London Stock Exchange. While he was reluctant to directly intervene by blocking the proposal out of fear of sending a message to international investors that Canada is not open for business, he has emerged as a big supporter of the rival Maple bid.

“This is a market-based solution,” Duncan added, noting that some of the country’s largest banks, insurers and pension funds came together not by “government fiat” but by “leading in the world on financial services.”

Wednesday’s announcement ends a takeover battle that began in early February with the TMX and LSE proposing a “merger of equals.” The proposal immediately ran into nationalist concerns as some Canadian politicians raised objections to what they saw as a foreign takeover of the exchange. The governments of Ontario and Quebec, which had to approve the merger, launched reviews of the deal along with the Ontario Securities Commission.

The Maple bid emerged in May, backed initially by nine banks and pension funds. The group expanded to 13 and promised a Canadian alternative to the LSE proposal.

Both sides sweetened their offers in recent weeks and launched attacks against each other. Rolet argued the Maple bid was a step backward for Canada’s stock market and posed serious competition issues. The Maple group, led by Bertrand, vice-chairman of National Bank Financial, countered by saying it had a superior bid that would keep the TMX under Canadian control.

TMX Group’s board rejected the Maple bid twice, arguing it was inferior to the LSE proposal. The TMX board also suggested the Maple proposal will face tough scrutiny by Canadian competition regulators who could veto the proposal.

“I think the Greek credit crisis weighed on investors’ minds,” said Chris Damas, an independent analyst and TMX shareholder. “It may not have been the best time to lock into a deal, which would give investors more sensitivity to European capital markets.”
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