Don’t be surprised if LSE resurfaces with TSX bid

Don’t be surprised if LSE resurfaces with TSX bid | ERIC REGULY | Rome - Globe and Mail Blog | Augst 30, 2011 | The Globe and Mail

London Stock Exchange CEO Xavier Rolet must be watching the TMX’s sinking price with something approaching rapture.

The shares traded Monday at just under $40 -- ten bucks and change short of Maple Group’s $50-a-share offer. The wide spread between the bid and market price reflects investor skepticism that Maple’s attempt to buy the TMX will sail through the Competition Bureau. Maple, backed by 13 financial services biggies, plans to buy Alpha Group, an alternative trading platform that now competes with the TMX, and combine it with the TMX trading system. Together, the TMX and Alpha would control a potentially competition-crunching 80 per cent of Canadian stock trading, based on July market share figures.

If Maple runs into a regulatory brick wall, the TMX would be left without a buyer. Mr. Rolet to the rescue?

The LSE killed its effort to merge with the TMX on June 29, after the TMX failed to gain enough shareholder support for a deal aimed at creating the world’s premier resources exchange, one that would allegedly have created compelling value through cost and revenue synergies. The share-swap attempt failed even though the LSE had flung a $4-a-share special dividend onto the table the week before.

If the LSE-TMX marriage made sense to both sides two months ago, you can assume they still think it makes sense today. While the TMX and Maple are talking to one another, you could also assume that the TMX and the LSE have not broken off all communication.

The LSE, whose shareholders had approved the union with the TMX, still needs a deal. It wants to be a global exchange and it can’t get there organically. It has to buy, get bought or merge as the industry consolidates. For the LSE, the TMX was to be the first step, but only the first step, onto the global stage.

Some brokers think the LSE will come back if Maple enters the regulatory maze. Others think the LSE's return is still a long shot, if only because the LSE itself, without the TMX at its side, is a target. The LSE’s profits are strong and rising, and the exchange is a fine brand in spite of its relatively small size. The shares are up 33 per cent in the last year (though down 12 per cent in the last month), reflecting the good operating performance, but probably also reflecting some takeover speculation. The Singapore Exchange, which failed to buy Sydney’s ASX earlier this year, is thought to be interested in the LSE.

The market is saying Maple will not get the TMX. The rumours say that the LSE would, as they say, consider its options if Maple proves a dud.

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