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Exclusive: Maple confident of regulatory nod on TMX bid

A sign displays TSX information in Toronto
A sign displays TSX information in Toronto

By Pav Jordan and Solarina Ho

TORONTO (Reuters) - An all-Canadian consortium expects its $3.8 billion bid for the Toronto Stock Exchange's parent to win regulatory approval even though the group would also absorb TSX's main competitor, a source close to the proposal said on Wednesday.

As part of its TMX Group takeover proposal, Maple Group Acquisition Corp would swallow Alpha Group, operator of the No. 1 alternative trading system, as well as CDS, a clearinghouse for stock trades.

"We're confident we would be able to affect a transaction," said the source, who insisted that the group had no intention of dropping Alpha from the proposal even though critics say it could lead regulators to veto the deal.

The source also said Maple had no plans to sweeten its C$48-a-share offer or alter any other terms of its bid.

Maple officially launched the hostile bid on Monday, about two weeks before a June 30 shareholder vote on a friendly, $3.5 billion offer for TMX from the London Stock Exchange Group .

"I can say that all of the Maple investors are committed to the idea of creating a vertically integrated exchange and clearing business and therefore being able to combine CDS and Alpha with TMX is critically important to the vision that is being established," the source said.

Maple - comprising 13 Canadian banks, pension funds and financial services firms - would control some 80 percent of Canadian stock trading by volume if its plan succeeds, raising monopoly concerns that require a regulatory review.

Maple sees a decision by Canada's Competition Bureau by September or October, the source said.

Even with after folding Alpha into a new TMX, Canadian markets would still have alternative trading venues.

The source said other TSX competitors such CHI-X and Pure Trading were viable options, and that others were likely to enter the Canadian market.

"If I just deal with CHI-X and Pure Trading, those two ATSs have the bandwidth and capability to absorb all of the Alpha volume if all of a sudden the traders decide for whatever reason that they don't like it (Alpha) being part of TMX," the source said.

"That's why we don't believe that competition is an issue at the end of the day," the source said, adding that Maple would likely operate Alpha as a separate brand.

A poll on Wednesday showed shareholders warming to the bid after Maple's 13 members outlined details of the offer in a circular this week and addressed valuation concerns surrounding Alpha and CDS.

Representatives of the group are meeting with institutional investors in Canada this week before moving on to the United States, where 40 percent of the stock is held.

Maple aims to draw their attention to what it says are benefits of a vertically integrated institution -- a one stop shop for equities, bonds, energy products and derivatives in exchange-traded and over-the-counter markets. Germany's Deutsche Boerse and others have already had success with that model.

($1=$0.98 Canadian)

(Reporting by Solarina Ho and Pav Jordan; editing by Frank McGurty)

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