Over the past week, two advisory firms recommended TMX Group shareholders vote in favour of the proposed merger with the London Stock Exchange on June 30, and reject the rival takeover offer from the Maple Group. With the vote now less than a week away and Maple’s bid spurned by two influential groups, what more can it do to win over shareholders?
At this point, not much. The Maple Group, a collection of some of the country’s biggest financial institutions, already raised its bid for the TMX earlier this week from $48 to $50 a share. The move came just hours after the TMX said it would pay a special cash dividend of $4 per share if the LSE merger proceeds. Maple is unlikely to raise its bid again, according to Macquarie Group analyst Ed Ditmire in New York. “It gets a lot tougher. They came out with a pretty strong bid in terms of price,” he says. “If they’re not at the ceiling already, they must be approaching it.” Raising the bid would also mean adding more debt into the proposal. “It already has very high levels of leverage,” Ditmire says.
Debt was one common issue both advisory firms (Glass, Lewis & Co. and Institutional Shareholder Services) singled out in their assessments. If the Maple proposal moves ahead, debt would nearly triple to three times earnings from the TMX’s current level. But it will likely climb even higher, depending on what Maple pays for alternative trading system Alpha Group and Clearing and Depository Services, both of which Maple wants to acquire. It’s not yet clear how much the consortium will have to spend.
It looks as though Maple can only engage in a public relations battle leading up to the vote next week. Case in point, the group released a statement of support Friday morning from billionaire fund manager Stephen Jarislowsky. “With all due respect for our friends in London, Canada and its financial community do not need their assistance to ensure their development on the international scene,” he said. “The TMX’s takeover by the London Stock Exchange will result in a weakening of Canada’s financial community. We are at risk of seeing an exodus of our financial institutions and our brightest financial talents.”
Jarislowsky rejected the notion that Maple’s offer was merely a protectionist ploy, and said it was the best way to grow the country’s financial community. The ownership structure of the new entity would be diffuse, which “should allay the fears of skeptics who foresee higher listing and transaction fees,” he said.
Maple also wasted no time in refuting the advisory firms’ opinions, pointing out in a statement yesterday that its offer was superior in terms of cash, and that its debt levels would be well within reason.
On the surface, support from two advisory firms for the LSE-TSX merger will be tough for Maple to contend with, though neither one backed the offer unconditionally. Both dwelled on the regulatory risks surrounding the plan, for instance. And as Ditmire points out, “Shareholders don’t always follow these firms’ recommendations.”