If a TSX topping bid is coming, it's time

TSX / LSE Merger Part 18

Wouldn’t a “Made in Canada” TSX solution be perfect right about now? When the Globe broke the story that some of Canada’s banks were trying to find a way to block the LSE / TMX merger, my initial reaction was to poo-poo it. Wave the flag all you want, I thought, but you have to answer to shareholders if you want to buy a $3 billion exchange merely out of spite.

However, with the passage of time, and a few helpful crumbs placed along my path by a couple of knowledgeable sources, it may not be such a crazy idea after all. In fact, it may just be happening early next week.

You see, depending on who you talk to, there will actually be a topping bid from the talented folks at TD Bank, CIBC, National Bank and whichever pension funds they’ve been able to corral for this once-in-a-generation deal. Once the CDS earns its keep, the deal actually is accretive to the bank’s shareholders. And, as much as most of the Canadian brokerage industry sold their TSX shares a decade ago via the IPO, that doesn’t mean they didn’t love owning their own exchange for all those years.

If you call around, the nay-sayers will tell you that “the regulators won’t allow” a topping bid from the banks given their stake in Alpha. And yet, that’s not exactly a reason for TD Bank et al to avoid launching a bid. It’s just a complication to closing.

From what I’ve seen so far, none of Queen’s Park, the OSC or Industry Minister Tony Clement are coming off like hawks on the TSX deal. Despite my best attempts, this is no Potash. Which may well intimate that they’d be just as happy with a “Made in Canada” topping bid.

As to the concerns about forgone competition, that’s a classic Red Herring. Retail investors can trade stocks right now for $7 on Questrade and the like. That won’t change if Alpha folds into the TSX. If the new TSX owners charge too much for trading and depository services, that’ll only spurn on new entrants; just as in any other part of the economy.

One potential bidding partner would only reply with a “no comment”. And the trading desks won’t put their clients into TSX shares right now since the chance of the TSX / LSE deal not happening is almost as high as the chance of it going through; no one in the risk/arb world seriously thinks a bank-led topping bid is viable with this assumed block by the regulatory powers. So, TSX shares sit where they do.

But that’s the wrong way to look at it. As TD Bank found when it bid for Canada Trust in the 90s, just because CIBC’s own CT bid had been thwarted by PM Jean Chretien two years earlier wasn’t a reason to not bid themselves. Sometimes in politics, the backdrop to the question is more important than the actual question itself. Time for the bidding group to fish or cut bait, as they say.

Hold on to your hats, everyone.

MRM