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Position Update (M&A)
The TMX Group announced today that its merger with the London Stock Exchange (LSE) was terminated, as it was clear that the two-thirds vote threshold required to approve the merger would not be met. As a reminder, LSE was offering an all-stock deal (with a value-neutral, special dividend to both sets of shareholders), whereas, the Maple consortium of financial institutions made a hostile bid of $50 cash, for up to 80% of the shares outstanding. The other 20% would remain outstanding alongside the new set of equity owners.
The outcome of the vote was as we expected. We believed that the valuation of the Maple bid was demonstrably higher than that of the LSE bid and also was less variable, in that it comprised of at least 80% cash (or $40 per share) on a prorated basis. At the time of the vote, the LSE bid was worth by our calculations over 10% less than the Maple bid. Furthermore, we believed that investors would be more comfortable with the 'made-in-Canada' solution and would prefer to hold the stubco paper rather than LSE shares. While we were correct in assessing the vote outcome, we incorrectly thought that the TMX share price would trade higher than it did today as a result. The TMX stock (closed today at $44.20) continues to trade at a significant discount to the nominal $50 bid value for a number of reasons, including: 1) there is not yet a friendly deal with the TMX Board; 2) the market is not certain of the value of the stubco that will remain outstanding; and, perhaps most importantly, 3) the market is unsure of how to handicap the odds of Competition Canada approving a deal that combines the two largest equity trading exchanges in Canada.
We remain long TMX.
until next time...
@The Vertex Team
For information on this update or our funds, please contact your sales representative:
Noel Dattrino
(Western Canada)
604.408.5660
Michael Lindblad
(Central and Eastern Ontario)
416.200.4457
James Wilson
(Central and Eastern Ontario, Maritime Canada)
519.902.7780
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