The TMX board said on Thursday it authorized official discussions with Maple Group Acquisition Corp, nearly a month after the London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz) abandoned a friendly takeover offer that failed to generate enough shareholder support.

“If TMX and Maple got together, if they were to agree on something, whatever they agree on would probably have a better chance of passing competition reviews in Canada,” said Ed Ditmire, an analyst with Macquarie Capital in New York.

The Competition Bureau is reviewing Maple’s offer, which includes plans to integrate the Toronto Stock Exchange with the Alpha Group alternative trading system (ATS), the TSX’s largest domestic competitor.

The move would result in the combined entity controlling more than 80 percent of Canadian stock trading and has raised concerns it would give TMX-Alpha too much power over listing prices.

Earlier this week, the bureau requested more information to complete its review of the proposed deal.

“It is inconceivable it should be an issue for the competition bureau, given other (ATS) players such as Chi-X and PureTrading could fill any void,” said independent analyst Chris Damas.

Damas, who supported Maple’s hostile offer of C$50 a share in cash and stock, totaling C$3.8 billion ($4.02 billion), expressed concern instead over whether the board make-up of a combined entity would be able to comply with existing laws, given the number of directors that will come from Maple and TMX.

“I really think this is the crux which will make or break this deal,” he said.

FINDING A MIDDLE GROUND

Maple, a 13-member consortium that includes some of the country’s biggest banks and pension funds, pitched itself as an all-Canadian solution to keeping TMX in Canadian hands. But its takeover of the nation’s main stock exchange, as well as the related TSX Venture Exchange and the Montreal Exchange derivatives bourse, does not sit well with many independent financial firms.

“It’s not as simple an issue as people let out to be,” said Thomas Caldwell, chairman of Caldwell Securities, who conceded that Maple’s competition hurdles were not insurmountable.

“It’s about some major institutions basically trying to gain control of the pricing mechanisms. So from that perspective, let’s call a spade a shovel here. It’s actually a remutualization (of the TMX) with a little bit of window dressing.”

Caldwell, who has not been shy about his opposition to the Maple offer and the nationalist rhetoric surrounding the deal, said he was “open” to Maple should the two sides find a middle ground that addressed concerns over access, pricing, and a promise by Maple’s key members to eventually reduce their ownership over time.

With dialogue starting just two weeks before the August 8 deadline for investors to tender their shares to Maple’s offer, some speculate the date could be extended as the two sides try to find a middle ground.

“It’s a beginning … The board has to engage Maple, but there’s no love between (Maple’s) Luc Bertrand and (TMX’s Tom) Kloet,” said Damas, who predicts the offer period for investors will likely be extended, given the laundry list of concerns that needed to be ironed out.

“The board is … walking a fine line between doing their fiduciary duty and catering to executive management that might have some problems with the Maple takeover.”

Among TMX’s biggest concerns has been the amount of debt Maple would bring to the table. Some say Maple is keen to have Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) and Bank of Montreal (BMO.TO: Quote, Profile, Research, Stock Buzz) — who had been advisers in the LSE-TMX deal — join the consortium. The equity they would bring could reduce Maple’s leverage to a level acceptable to the TMX board.

TMX took pains on Thursday to say it was not making any recommendations to shareholders regarding the current offer, but ultimately, cash may still win the day.

“Life is a business of compromises,” said Caldwell. “The deal will probably be based upon price, which is not necessarily the right thing, but we all have a responsibility to our clients to get the best price.”

(Editing by Rob Wilson)

The TMX board said on Thursday it authorized official
discussions with Maple Group Acquisition Corp, nearly a month
after the London Stock Exchange (LSE.L: Quote, Profile, Research, Stock Buzz) abandoned a friendly
takeover offer that failed to generate enough shareholder
support. [ID:nN1E76K29L]

“If TMX and Maple got together, if they were to agree on
something, whatever they agree on would probably have a better
chance of passing competition reviews in Canada,” said Ed
Ditmire, an analyst with Macquarie Capital in New York.

The Competition Bureau is reviewing Maple’s offer, which
includes plans to integrate the Toronto Stock Exchange with the
Alpha Group alternative trading system (ATS), the TSX’s largest
domestic competitor.

The move would result in the combined entity controlling
more than 80 percent of Canadian stock trading and has raised
concerns it would give TMX-Alpha too much power over listing
prices.

Earlier this week, the bureau requested more information to
complete its review of the proposed deal. [ID:nL3E7II3A4]

“It is inconceivable it should be an issue for the
competition bureau, given other (ATS) players such as Chi-X and
PureTrading could fill any void,” said independent analyst
Chris Damas.

Damas, who supported Maple’s hostile offer of C$50 a share
in cash and stock, totaling C$3.8 billion ($4.02 billion),
expressed concern instead over whether the board make-up of a
combined entity would be able to comply with existing laws,
given the number of directors that will come from Maple and
TMX.

“I really think this is the crux which will make or break
this deal,” he said.

FINDING A MIDDLE GROUND

Maple, a 13-member consortium that includes some of the
country’s biggest banks and pension funds, pitched itself as an
all-Canadian solution to keeping TMX in Canadian hands. But its
takeover of the nation’s main stock exchange, as well as the
related TSX Venture Exchange and the Montreal Exchange
derivatives bourse, does not sit well with many independent
financial firms.

“It’s not as simple an issue as people let out to be,” said
Thomas Caldwell, chairman of Caldwell Securities, who conceded
that Maple’s competition hurdles were not insurmountable.

“It’s about some major institutions basically trying to
gain control of the pricing mechanisms. So from that
perspective, let’s call a spade a shovel here. It’s actually a
remutualization (of the TMX) with a little bit of window
dressing.”

Caldwell, who has not been shy about his opposition to the
Maple offer and the nationalist rhetoric surrounding the deal,
said he was “open” to Maple should the two sides find a middle
ground that addressed concerns over access, pricing, and a
promise by Maple’s key members to eventually reduce their
ownership over time.

With dialogue starting just two weeks before the Aug. 8
deadline for investors to tender their shares to Maple’s offer,
some speculate the date could be extended as the two sides try
to find a middle ground.

“It’s a beginning … The board has to engage Maple, but
there’s no love between (Maple’s) Luc Bertrand and (TMX’s Tom)
Kloet,” said Damas, who predicts the offer period for investors
will likely be extended, given the laundry list of concerns
that needed to be ironed out.

“The board is … walking a fine line between doing their
fiduciary duty and catering to executive management that might
have some problems with the Maple takeover.”

Among TMX’s biggest concerns has been the amount of debt
Maple would bring to the table. Some say Maple is keen to have
Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) and Bank of Montreal (BMO.TO: Quote, Profile, Research, Stock Buzz) –
who had been advisers in the LSE-TMX deal — join the
consortium. The equity they would bring could reduce Maple’s
leverage to a level acceptable to the TMX board.
[ID:nN1E76A08V]

TMX took pains on Thursday to say it was not making any
recommendations to shareholders regarding the current offer,
but ultimately, cash may still win the day.

“Life is a business of compromises,” said Caldwell. “The
deal will probably be based upon price, which is not
necessarily the right thing, but we all have a responsibility
to our clients to get the best price.”

($1=$0.95 Canadian)
(Editing by Rob Wilson)

The currency added to its gains after the central bank
released its Monetary Policy Report on Wednesday morning. It
eased modestly following Governor Mark Carney’s press
conference, when the bank signaled it was in no rush to
normalize rates. [ID:nN1E76J0N0]

“Yesterday, I think the market was a bit surprised by how
hawkish the Bank of Canada sounded in their communique,” said
Charles St-Arnaud, Canadian economist and currency strategist
with Nomura Securities International in New York.

“Today, the Monetary Policy Report only confirmed and gave
a bit more detail on the outlook, on the quarterly forecast,”
St-Arnaud said. He added that any possible rate move later in
the year would be “conditional on what risk is doing, what the
tension in Europe’s doing.”

At 12:40 p.m. (1640 GMT), the currency CAD=D4 stood at
C$0.9483 to the U.S. dollar, or $1.0545, up from Tuesday’s
North American close at C$0.9508 to the U.S. dollar, or
$1.0517. Earlier, it rose as high as C$0.9457 to the U.S.
dollar, or $1.0574, its best level since May 2.

“There was an upsize in terms of inflationary expectations
by the bank in the short term, but really the market sentiment
with respect to the Canadian dollar was changed in conjunction
with yesterday’s policy guidance,” said Jack Spitz, managing
director of foreign exchange at National Bank of Canada.

Spitz said external factors — including crude prices and
equity market sentiment — remained influential drivers, in
addition to the central bank’s comments.

The central bank held its overnight rate at 1.0 percent on
Tuesday, as expected, but said core inflation will reach the
its 2 percent target earlier than forecast as it sees domestic
economic growth accelerating in the second half of 2011, in
contrast to rising risks abroad. [nN1E76I045]

“The BoC could have easily bought more time in the face of
key global risks but may have felt uncomfortable doing so given
that the next best chance to more fully explain any shift in
thinking wouldn’t have come until the October MPR,” Scotia
Capital economists Derek Holt and Karen Cordes Woods said in an
early note to clients.

Inflation and retail sales data on Friday will likely
provide the market with further direction.

Canadian government bond prices were generally lower across
the curve, reflecting the possibility that interest rate
increases may come before year-end.

The two-year bond CA2YT=RR, which is more sensitive to
rate moves, was down 7 Canadian cents to yield 1.517 percent,
while the 10-year bond CA10YT=RR lost 27 Canadian cents to
yield 2.930 percent.

($1=$0.95 Canadian)
(Editing by Rob Wilson)

Maple Group Acquisition Corp says it would like to strike a friendly deal with TMX and believes its C$3.8 billion ($3.96 billion) offer in cash and stock is compelling.

The 13-member consortium says it has no plans to change its $50-a-share bid while it pursues a three-track strategy of engaging TMX management, soliciting shareholders and working with competition authorities to win their approval.

“There haven’t been formal, sit-down negotiations across the table from the (TMX) board, but there’s been information exchanged. There’s been informal discussions through advisers and others,” said Maple spokesman Peter Block.

“We are open to working with the TMX and we hope to complete a transaction with TMX support, while being fully committed to following through on our offer,” Block said, who added that talks with investors have gone well.

The TMX takeover battle took a decisive turn late last month when the London Stock Exchange Group abandoned a friendly proposal to combine the two companies because of insufficient shareholder support.

The LSE deal was announced in February, around the same time Germany’s Deutsche Boerse AG unveiled its $9.7 billion bid to take over NYSE Euronext, operator of the New York Stock Exchange. Shareholders approved that deal on Thursday, taking a big step toward the creation of the world’s largest exchange operator.

It was the first of a series of proposed takeovers involving exchange operators that made it that far, though the deal must still clear formidable antitrust hurdles on both sides of the Atlantic.

AUGUST DEADLINE

Maple, comprised of 13 Canadian financial institutions, will need 70 percent of shareholders to tender their shares by August 8. But it could extend that deadline, Block said.

Shareholders may have little option but to vote in favor of the deal. Analysts have questioned whether the participation of four of Canada’s top six banks in Maple Group may scare off potential white knights.

RBC Capital Markets analyst Geoffrey Kwan said in a research note this week that he saw few global exchange targets that would make strategic sense for TMX.

But independent analyst Chris Damas says a dark-horse bidder could emerge if Maple fails to win sufficient support.

Still, analysts say shareholders may find it difficult to resist the premium over the current stock price that Maple is offering. TMX was trading at C$43.75 on Thursday afternoon, compared with the C$50 bid price.

Perhaps the biggest hurdle for Maple is getting past Canadian competition authorities. The deal envisions the integration of the Toronto exchange with its largest competition, the Alpha Group.

The Competition Bureau does not tend to block deals outright, extracting concessions instead.

Some worry that a TMX-Alpha combination would give the exchange’s biggest users too much control of the Canadian stock market.

(Editing by Frank McGurty)

The hit to gross domestic product (GDP) will be dramatic in the quarter just passed, according to the survey of 21 economists taken in the past week. GDP growth is expected to slow to 1.5 percent, annualized, from 3.9 percent in January-March.

That is a huge downgrade from the 2.7 percent second quarter growth rate forecast in a poll just three months ago and shows just how sharp the slowdown has been over that short period. Growth stalled in April, largely due to a slump in auto production.

Economists are optimistic the economy will rebound, however, with the consensus calling for 2.9 percent annualized growth in the current quarter, barely changed from expectations in April, and 2.8 percent as 2011 draws to a close.

A worsening sovereign debt crisis in Europe, which this week threatened to ensnare a G7 nation, Italy, as well as softening demand from the United States — by far Canada’s biggest export market — has darkened prospects for the economy.

“Our major trading partner, the U.S., lost a good bit of traction through the spring and even early summer, with the slowing job growth the latest testament to that,” said Sal Guatieri, a senior economist with BMO Capital Markets.

“Of course that will undermine Canadian exports.”

News on Friday that U.S. jobs growth effectively ground to a halt last month unsettled financial markets. Canada, with about one-tenth of the population, created about a third more jobs during the same month, underscoring its relative strength.

Many economists note that Canada, a major energy and commodity exporter, has one of the healthiest economies among the Group of Seven countries.

But Canada’s GDP now is projected to grow an average 2.8 percent in 2011, down from 3 percent expected in April. The consensus for 2012 slipped to 2.6 percent. That compares with 2.8 and 3.0 percent expected for the U.S.

Canada’s unemployment rate, currently at 7.4 percent and far below the U.S. rate of 9.2 percent, is projected to fall to 7.3 percent by end-year, lower than the 7.5 percent forecast in the previous poll. The jobless rate is expected to average 7.2 percent in 2012 compared with 7.3 percent forecast in April.

INFLATION EXPECTATIONS RISE

Core inflation, which excludes volatile food and energy prices, was expected to come in at 1.8 percent this year, a rise from the median 1.5 percent economists predicted in the April poll. The central bank aims to keep inflation at the midpoint of a 1 to 3 percent range.

Overall Canadian inflation rose to its highest level in more than eight years in May, raising prospects that the central bank could increase interest rates sooner than previously expected.

But despite the inflation data, many economists have pushed back their forecasts for the Bank of Canada’s next rate hike due to external risks. <CA/POLL>

“One of the things that we’re going to see is a positive thrust from monetary policy, because interest rates are still very low and very accommodative,” said Sheryl King, an economist and strategist at BofAML.

All 37 forecasters in Wednesday’s Reuters interest rate poll said the Bank of Canada would hold its interest rate at 1 percent when it meets to set rates this month. The median forecast was for the next hike to take place in the fourth quarter of this year.

(Polling by Teresa Ruiz; additional writing by Jeffrey Hodgson; Editing by Ross Finley and Ron Askew)

The C$3.5 billion ($3.65 billion) auction produced an
average yield of 1.576 percent, up from 1.572 percent at the
last two-year bond auction in June.

“It came about half a basis point through where it was
trading in the pre-market, so relatively firm, relatively
well-received. It continued to trade OK in the aftermath as
well,” said Mark Chandler, head of Canadian fixed income and
currency strategy at RBC Capital Markets.

“It continues the string of auctions that we’ve seen of
late which are well received, well attended, relatively good
bid-to-cover ratios. Generally the bond market, certainly at
the front end, has done well in the last several weeks.”

There was more than C$8.76 billion in bids from primary
dealers, resulting in a bid-to-cover ratio of 2.502, the
measure of investor demand. Chandler said Canadian auctions
were typically well-contained within the 2.5 range.

“It’s not always the most important metric if you’re trying
to illustrate the success of an auction,” Chandler said.

The auction’s success came even as bond prices slipped
across the curve with investors easing back into riskier
assets, following a choppy week in markets on concerns the
sovereign debt crisis in Europe could spread, and ongoing
softness in the U.S. economy.

The bonds, which carry a coupon of 1.500 percent, mature on
Nov. 1, 2013 and will be issued on July 15. The outstanding
debt of the issue after the auction is C$3.5 billion.

The Bank of Canada said it bought C$525 million of the
issue for itself and on behalf of its clients.

($1=$0.96 Canadian)
(Editing by Peter Galloway)

While some markets watchers speculate a rival bid could
still surface for TMX Group (X.TO: Quote, Profile, Research, Stock Buzz), operator of the Toronto
Stock Exchange, analysts and fund managers say few players can
match the financial firepower of the Maple Group consortium.

The group, which includes some of Canada’s biggest bank and
pension funds, became the sole bidder for TMX following the
collapse last month of the London Stock Exchange’s (LSE.L: Quote, Profile, Research, Stock Buzz)
friendly takeover offer.

“Any party would find negotiating a combination with the
TMX to be incredibly tricky with the kind of guard dogs of the
banks in front of them,” said Ed Ditmire, an analyst at
Macquarie Capital in New York.

While Maple was born as an attempt to block an LSE takeover
of TMX, the LSE’s departure does not seem to have weakened its
resolve.

Luc Bertrand, chief representative of Maple, told Reuters
on July 6 the group hopes to complete its acquisition of TMX on
friendly terms, but is “fully committed” to getting the deal
done. [ID:nN1E765164]

Bertrand also said Maple’s existing hostile bid is “as
strong as you can possibly imagine”, suggesting it has little
fear of a foreign contender like Nasdaq .OMXC20 stepping in.

“Even though (Nasdaq) seem to be very aggressive, I’m not
sure they have anymore capital than the LSE had to put toward a
better deal,” said Chris Damas, an independent Ontario-based
analyst. “They would be outgunned by the Maple Group.”

Still, Damas believes there’s a slim chance LSE could come
back with a partner that has a bigger bank account.

CASH IS KING

With no serious white knights on the horizon, Maple is
focused on overcoming key hurdles to its bid.

As it stands, the Maple bid needs 70 percent of
shareholders to tender their shares by Aug. 8. The offer works
out to C$50 a share in stock and cash. TMX Group shares closed
at C$44.15 in Toronto on Friday.

“If we get (C$50/share) in September, it’s hard to beat
that kind of summer return. Plus the dividend,” Damas said.

“Bertrand said he didn’t have to raise the offer price –
who can blame him? He’s the only game in town right now.”

Not all shareholders will succumb easily, however.

Some express concern over the amount of leverage Maple
brings to the deal, and say this may be why the group is keen
to have Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) and Bank of Montreal
(BMO.TO: Quote, Profile, Research, Stock Buzz) join the consortium.

Those two big banks were advisors in the LSE-TMX deal. The
equity they would bring to Maple if they joined the consortium
could reduce its leverage to a level acceptable to the TMX
board.

FRIENDS WITH BENEFITS?

Canada’s increasingly aggressive competition watchdog, led
by a tenacious former litigator, also could pose a major
obstacle to Maple’s bid. [ID:nN1E76411R]

Maple hopes to integrate Canada’s largest alternative
trading platform, Alpha, which is also owned by many of the
same Maple members, with TMX. Critics say this would give the
group too much control of the market.

Yet many think Maple’s regulatory campaign could be given a
boost if it wins over TMX management, which reacted coolly to
the Maple bid and has touted its growth prospects as a
stand-alone entity. [ID:nN1E75T0MW]

“If you have both parties on board trying to lobby and make
the best case — that this combination is acceptable from an
antitrust perspective — it would go more smoothly than if TMX
was brought into it kicking and screaming,” said Macquarie’s
Ditmire.

The TMX may try to build a case for independence through
managing its leverage more aggressively, returning more cash to
shareholders and efficiency programs.

But market watchers said the feasibility of such a plan
remains to be seen, and in the end TMX management may have no
choice but to acquiesce and accept a friendly deal.

“Unless (TMX CEO Tom) Mr. Kloet comes up with something
that makes real sense to shareholders, I can’t see how with a
$50 offer on the table, how he can fight back unless he can
come up with a rabbit out of the hat,” said Stephen
Jarislowsky, the billionaire investor and chief executive of
Jarislowsky Fraser Ltd.

($1=$0.96 Canadian)
(Editing by Jeffrey Hodgson and Peter Galloway)

London Stock Exchange’s (LSE.L: Quote, Profile, Research) rival friendly bid for TMX
collapsed a week ago when it became apparent it did not have
sufficient shareholder support to reach the two-thirds
threshold needed for it to go through.

“Now that we’ve gone over the very important step of not
having the LSE proposal proceed … we’re of the view that the
70 percent (shareholder support) is, in terms of reaching it,
very realistic,” Maple’s chief representative, Luc Bertrand,
told Reuters on Wednesday.

TMX shareholders have until Aug. 8 to tender their shares
to Maple’s C$3.8 billion ($3.94 billion) offer.

The bid from Maple, a consortium of Canada’s largest banks
and pension funds, is conditional on getting regulatory
clearance to integrate the Toronto exchange with its largest
competitor, alternative trading platform Alpha, which is
already controlled by Canadian banks. Critics say the
combination would give Maple too much control over the market.

Bertrand, 56, said Maple is working with Canada’s
Competition Bureau on its submission and that it has a very
strong case.

Bertrand, who is also vice-chairman of Maple member
National Bank of Canada (NA.TO: Quote, Profile, Research), indicated that Maple does not
believe it needs to raise its bid again to get more
shareholders onside.

“This is as strong a bid as you can possibly imagine, so
we’re very comfortable with our proposal and we think it’s fair
to shareholders.”

Bertrand said Maple is fully committed to completing the
acquisition, but hopes it can do so on friendly terms.

($1=$0.97 Canadian)

(Editing by Jeffrey Hodgson and Peter Galloway)

((solarina.ho@thomsonreuters.com;+1 416 941 8067; Reuters
Messaging: solarina.ho.thomsonreuters.com@reuters.net))
Keywords: TMX/MAPLE

(C) Reuters 2011. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.

London Stock Exchange’s (LSE.L: Quote, Profile, Research, Stock Buzz) rival friendly bid for TMX collapsed a week ago when it became apparent it did not have sufficient shareholder support to reach the two-thirds threshold needed for it to go through.

“Now that we’ve gone over the very important step of not having the LSE proposal proceed … we’re of the view that the 70 percent (shareholder support) is, in terms of reaching it, very realistic,” Maple’s chief representative, Luc Bertrand, told Reuters on Wednesday.

TMX shareholders have until August 8 to tender their shares to Maple’s C$3.8 billion ($3.94 billion) offer.

The bid from Maple, a consortium of Canada’s largest banks and pension funds, is conditional on getting regulatory clearance to integrate the Toronto exchange with its largest competitor, alternative trading platform Alpha, which is already controlled by Canadian banks. Critics say the combination would give Maple too much control over the market.

Bertrand, 56, said Maple is working with Canada’s Competition Bureau on its submission and that it has a very strong case.

Bertrand, who is also vice-chairman of Maple member National Bank of Canada (NA.TO: Quote, Profile, Research, Stock Buzz), indicated that Maple does not believe it needs to raise its bid again to get more shareholders onside.

“This is as strong a bid as you can possibly imagine, so we’re very comfortable with our proposal and we think it’s fair to shareholders.”

Bertrand said Maple is fully committed to completing the acquisition, but hopes it can do so on friendly terms.

($1=$0.97 Canadian)

(Editing by Jeffrey Hodgson and Peter Galloway)

“Now that we’ve gone over the very important step of not
having the LSE proposal proceed … we’re of the view that the
70 percent (shareholder support) is, in terms of reaching it,
is very realistic,” Maple’s chief representative, Luc Bertrand,
told Reuters.

He said the consortium of banks and pension funds is
working with Canada’s Competition Bureau on its submission and
that it has a very strong case.

Bertrand, who is also vice-chairman of Maple member
National Bank of Canada (NA.TO: Quote, Profile, Research), indicated that Maple does not
believe it needs to raise its bid again to get more
shareholders onside.

“This is as strong a bid as you can possibly imagine, so
we’re very comfortable with our proposal and we think it’s fair
to shareholders.”

($1=$0.97 Canadian)

(Editing by Jeffrey Hodgson)

((solarina.ho@thomsonreuters.com;+1 416 941 8067; Reuters
Messaging: solarina.ho.thomsonreuters.com@reuters.net))
Keywords: TMX/MAPLE

(C) Reuters 2011. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.