Competition Commissioner raises concerns about proposed TMX Maple merger

It said it voiced its concern to Maple Group, the consortium of 13 Canadian financial institutions, and TMX Group (TSX:X) Tuesday about the $3.8 billion deal that would see the group control 90% of trading in Canada.

However, the bureau said there is an opportunity for the companies to alleviate some of its concerns.

“Generally, if the Commissioner of Competition determines that the merger is likely to substantially affect competition, she may negotiate a mutually agreeable solution via a consent agreement, where it is possible to resolve the competition concerns,” it said.

“However, when remedies cannot sufficiently address the Bureau’s concerns, it may apply to the Competition Tribunal for an order to prevent, dissolve or alter the merger.”

The federal Competition Bureau has been aggressive in ensuring proposed takeovers do not reduce competition for consumers and companies.

Earlier this year, it requested more information as part of its investigation of a proposed $165-million takeover of Futuremed Healthcare Products Corp. (TSX:FMD) by a subsidiary of U.S.-based Cardinal Health, Inc. (NYSE:CAH).

Last year, the regulator forced U.S.-based Nufar Ltd. to divest some of its Canadian assets acquired in a takeover of herbicide company AH Marks Holding Ltd.

The bureau has also pressed the Toronto Real Estate Board to open up its listing system to more competition so home buyers have more choice in how they hire a real estate agent.

Some of Canada’s smaller investment firms have also raised red flags about the merger of the bank-owned Alpha trading platform and CDS clearing house with TMX Group, owner of the Toronto and TSX Venture stock exchanges, Montreal derivatives market and more specialized trading platforms.

Critics have said the Maple plan could create a monopoly that favours the banks and insurance companies.

The 13-member Maple Group includes some of Canada’s biggest pension managers, banks, investment houses and the country’s largest life insurance firm — all major users of securities markets.

The banks also own some of Canada’s biggest investment firms and mutual fund operations, which compete with much-smaller independents.

In a joint statement earlier Wednesday, Maple Group Acquisition Corp. and TMX Group Inc. note the Commissioner of Competition indicated she has not reached a final conclusion.

“Maple and TMX Group intend to continue to work closely with staff of the Competition Bureau to address the Commissioner’s concerns, including by identifying appropriate remedial measures,” the companies said in a statement.

“As Maple has stated previously, it is committed to working constructively with all of the relevant regulators, including Canadian securities regulators, to address any questions they may have so that the proposed transactions can proceed in the best interests of TMX Group, its shareholders and the Canadian capital markets.”

“Maple and TMX Group continue to strongly believe that the proposed transactions will substantially benefit all capital market participants,” the statement said.

The Commissioner’s approval of the proposed transactions is a condition to the completion of Maple’s offer to acquire TMX Group.

The companies’ statement didn’t say what options are available but, in the past, the Competition Bureau has required the sale of some parts of a business to a third party as a condition for approving the larger deal.

There are already provisions under Ontario law that prevent any shareholder from owning more than 10% of the equity in TMX Group, in order to prevent concentration of control.

The Maple Group is attempting to apply that rule by having each member buy no more than 10% of TMX Group’s equity and by leaving some of the shares in the public market, where they now trade on the Toronto Stock Exchange.

Maple also needs regulatory approvals from several provincial regulators

A previous plan to combine TMX Group with the company that owns the London Stock Exchange, would have required authorities in Ontario to waive the 10% rule. However, that deal fell apart when TMX shareholders declined to give sufficient support for the friendly transatlantic merger before the necessary regulatory rulings from Ontario and other provinces could be issued.

Maple and TMX Group will appear on Thursday at an Ontario Securities Commission public hearing into their $3.8 billion arrangement. Quebec’s securities regulator has already held public hearings on the proposal.

The Maple consortium includes the Alberta Investment Management Corp., Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, CIBC World Markets (TSX:CM), Desjardins Financial, Dundee Capital Markets, Fonds de solidarite des travailleurs du Quebec, GMP Capital (TSX:GMP), National Bank Financial (TSX:NA), Ontario Teachers’ Pension Plan, Scotia Capital (TSX:BNS), TD Securities (TSX:TD) and Manulife (TSX:MFC).

TMX shares dropped $1.29 or nearly three per cent to $43.46 on Wednesday.