LSE-Toronto stock exchange merger fails (AFP)

OTTAWA (AFP) – The London Stock Exchange and Toronto's bourse scrapped Wednesday plans to merge after admitting they could not get the support of two-thirds of their shareholders.

The move opened the way for the possible takeover of the TMX Group, which operates the Toronto and Montreal stock markets, by a consortium of 13 Canadian banks and pension funds called the Maple Group which had launched a rival $3.8 billion bid to that of the London Stock Exchange.

"A majority of shareholder votes cast by proxy prior to the June 28, 2011 proxy cutoff supported the merger resolution," the LSE and TMX Group said in a statement.

"However, it is clear that the two-thirds threshold required to approve the merger would not have been achieved."

The merger also risked not obtaining the approval of regulatory bodies in Quebec and Ontario provinces, where political leaders were outspoken about their preference for the Maple bid.

The LSE early this year announced plans to take over TMX with a view to creating a global giant rivaling NYSE Euronext and Deutsche Boerse, which are also trying to merge their operations.

In response the Maple Group put together its own bid for TMX Group to block the deal.

Both bids were about $3.8 billion.

TMX Group said it would "continue to pursue its growth objectives" while its board "reviews the company's opportunities, including the offer from Maple Group."

TMX Group has also agreed to pay LSE a $10 million expense fee for the failed bid, and if it accepts Maple's acquisition offer in the next 12 months will pay LSE an additional $29 million.

"We are clearly disappointed," LSE chief executive Xavier Rolet said in a statement.

"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."

"Whilst the merger with TMX Group was an exciting opportunity... we continue to see other significant growth opportunities across our well-positioned capital markets, information services, technology and post trade businesses," Rolet added.

Maple, meanwhile, expressed joy at the outcome.

Speaking on behalf of Maple's investors, Luc Bertrand said: "We are very pleased with the support our offer received from TMX Group shareholders."

With the LSE-TMX deal dead, "we hope we may now engage in a positive dialogue with the TMX Group board," he added, saying the Maple bid "represents the best way forward for TMX Group and the Canadian capital markets."

"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," Bertrand said.

Louis Gagnon, a finance professor at Queen's University in Ontario, said "TMX now will probably accept Maple's offer."

"But there is still fear that it will create a monopoly in Canada," he added.

Maple is looking to also buy Alpha Group, another Canadian trading system, as well as the stock clearing and depository service CDS to create a national champion controlling nearly all trading in this country.

There is also concern that the Maple bid is heavily leveraged, as compared to the LSE's offer.

For the LSE, the fear now is that it could be left out of the global exchanges consolidation.

Following the announcement, TMX shares gained nearly two percent to CAN$44.35 (US$45.69) in Toronto.