TMX Group kills merger with London Stock Exchange

TORONTO (AP) -- The operators of the Toronto and London stock exchanges have killed a $3.8-billion proposed merger, saying the controversial deal could not garner enough shareholder support to go ahead.

TMX Group said Wednesday that a majority of proxy votes sent in ahead of its Thursday annual meeting supported the merger but it was "clear" the proposal could not achieve the required two-thirds support from all shareholders.

TMX Group CEO Tom Kloet said the company will now review a rival hostile bid by Maple Group Acquisition Corp., a group of 13 Canadian banks and pension funds.

"Although we will not join forces with LSE Group, our business is strong and I have enormous confidence in the continued success of our company," Kloet said in a statement.

In a statement, Xavier Rolet, the CEO of the London Stock Exchange Group, said he was "disappointed."

"We believe the merger would have been a unique opportunity for TMX Group shareholders to be partners in a truly international group, co-located in Toronto and London, focused on growth and opportunity," he wrote.

TMX says it will pay a $10.3 million termination fee to the LSE, and a further $29.8 million if the acquisition with Maple goes through within 12 months.

"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," Maple spokesman Luc Bertrand said.

The rejection of the merger with the LSE now puts more pressure on the TMX to negotiate a friendly deal with Maple Group, which now has the only bid on the table. The rival bidder's $3.7-billion offer has been repeatedly rejected by the TMX, mainly because it is considered loaded down with too much debt.

Proponents of both the LSE and Maple Group bids have been waging a media and speaking blitz to win support for their positions in recent weeks, the campaign pitting prominent Bay Street players against each other on either side.

Kloet said that the TMX exchange ownership still opposes that bid.

However, now that the LSE deal is dead, two major Canadian banks that had advised on that deal -- Royal Bank of Canada and Bank of Montreal -- may now be free to join the Maple Group and that could lead to a revised offer with financial conditions more palatable to the TMX.

Some financial players were concerned that Canada's stock exchange would be under foreign control, with the combined group's chief executive based in London. LSE shareholders would have owned 55 percent of the combined company, while TMX Group shareholders would have owned 45 percent.

The LSE merger had received the stamp of approval earlier this week from a group of 11 top Toronto financial players, including former TSX chief executive Rowland Fleming.

The LSE had sweetened its bid in an attempt to lure investors to the all-shares deal, by offering a special dividend of $4.1 per share. The TMX also promised to continue to pay other dividends, replacing an earlier plan that would have seen TMX shareholders take a hit.

The Maple Group then increased its offer to $51 per share up from $49 -- on the condition that shareholders of TMX Group reject the merger with the LSE.