- LSEG and TMX Group agree to a $4 per share special dividend for TMX Group shareholders, and an 84.1 pence per ordinary share special dividend for LSEG shareholders, payable on closing
- LSEG and TMX Group intend to increase their regular dividend post-merger to be consistent with the current regular dividend of TMX Group
- TMX Group Board concludes Maple's current offer has not addressed previously expressed deficiencies
- Recommends shareholders support the LSEG TMX merger and vote “FOR” the merger prior to the June 30 TMX Group shareholders' meeting
TMX Group Inc. today announced that TMX Group and London Stock Exchange Group plc (“LSEG”) have agreed to a special cash dividend (the “Special Dividend”) to be paid on closing of their proposed merger. With respect to the Special Dividend, TMX Group shareholders will receive C$4.00 per TMX Group share and LSEG shareholders will receive 84.1 pence per ordinary share, reflecting the merger ratio for the merger. Based on TMX Group's and LSEG's issued share capital as at June 20, 2011 and assuming an exchange rate of 1.5883, the total amount of the Special Dividend is expected to be approximately C$660 million (£416 million). The Special Dividend will be payable to persons who are TMX Group shareholders immediately prior to completion of the merger and will be paid shortly after completion. The precise timing of payment will accordingly depend upon the timing of completion of the merger, which is expected to occur in the fall of 2011.
In addition, LSEG and TMX Group intend to change the dividend policy of LTMX Group (the proposed name of the merged company) from that described in TMX Group's Management Information Circular dated May 25, 2011. Following completion of the merger, LTMX Group intends to establish a dividend policy that provides LTMX Group shareholders with an initial annual dividend per LTMX Group share that is at least equal to the current annual dividend per TMX Group share divided by the merger ratio (being 2.9963 LSEG shares for each TMX Group share) (the “New Dividend Policy”). Thereafter, LTMX intends to maintain a progressive dividend policy, as earnings and cash flow allow.
For the quarter ended March 31, 2011, TMX Group paid a dividend of C$0.40 per TMX Group share (equivalent to C$1.60 on an annualized basis). On an equivalent basis, using the merger ratio and assuming an exchange rate of 1.5883, the total LSEG dividends declared of 26.8 pence per LSEG share for the year ended March 31, 2011 would have increased to 33.6 pence per LSEG share.
TMX Group also announced that the TMX Group Board had considered further the unilateral formal offer by Maple Group Acquisition Corporation (“Maple”) to acquire TMX Group announced on June 13 (the “Maple Offer”). After carefully considering the Maple Offer with the assistance of its financial and legal advisors, the TMX Group Board determined that the current Maple Offer is not, and could not reasonably be expected to result in, a “superior proposal” for purposes of the LSEG merger agreement.
The TMX Group Board recommends that TMX Group shareholders reject the current Maple Offer and not tender their shares to that offer. The TMX Group Board also reiterates its recommendation that TMX Group shareholders vote in favour of the agreed merger with LSEG to form an international leader positioned for growth on the world stage. TMX Group shareholders should vote FOR the merger using their BLUE proxies.
Wayne Fox, Chair of TMX Group Board of Directors added:
“The Board takes its fiduciary responsibility extremely seriously and took the time to conduct a careful analysis of the current Maple Offer. The Board determined that the current Maple Offer is not, and could not reasonably be expected to result in, a superior proposal to our agreed merger with LSEG. The Board reiterated its recommendation of the merger with LSEG to form a new international company with strong Canadian leadership in both senior management and the Board.”
Thomas Kloet, Chief Executive Officer of TMX Group made the following comments:
“The Board and senior management believe that the agreed merger with LSEG will deliver the most value for shareholders, market participants and a broad array of stakeholders. This Special Dividend demonstrates the confidence TMX Group and LSEG have in the combined business. Participating in a globally positioned exchange group is the right path forward for our company and our shareholders and will enhance the competitiveness of Canada's capital markets in an increasingly global financial marketplace.”
The Board's Determination
The reasons for TMX Group Board's rejection of the current Maple Offer will be detailed in the Directors' Circular, which will be filed on a timely basis. The TMX Group Board concluded that the current Maple Offer, like the Maple non-binding proposal of May 13, 2011, above all failed to provide important financial and non-financial information that the TMX Group Board would have required to reach the conclusion at this time that the Maple Offer could have reasonably been expected to result in a “superior proposal”. In particular, in making its determination, the TMX Group Board considered the following factors:
• The Maple Offer is financially inadequate — Having considered the advice of its financial advisors among other things, the TMX Group Board believes that the financial consideration offered by Maple is inadequate given that the Maple Offer entails a change of control of TMX Group.
• The Maple Offer has not addressed significant competition law issues — The Maple Offer raises significant competition law issues and does not describe how Maple would address those issues.
• The Maple Offer raises significant conflict of interest and other issues that must be addressed in order to secure securities regulatory approvals — The Maple Offer raises significant conflict of interest and other issues that will be of concern to securities regulators, and Maple does not describe how it would address those issues.
• The Maple Offer has significant execution risk for shareholders — Under the Maple Offer, TMX Group and TMX Group shareholders bear all of the regulatory risk and the Maple Offer contains no compensation for TMX Group if regulatory approvals are not received.
• The Maple Offer results in significantly increased leverage — The significant indebtedness contemplated by the Maple Offer generates much, if not all, of the earnings accretion referred to in the Maple Offer. The Maple Offer contemplates increasing TMX Group's net debt to approximately 2.9x LTM EBITDA from 0.4x LTM EBITDA currently (the merged company's net debt, after taking into account the Special Dividend, would be approximately 1.4x LTM EBITDA as of March 31, 2011). This would result in TMX Group being one of the most leveraged exchange groups in the world. This leverage could constrain TMX Group's ability to execute and implement strategic opportunities in the future without providing offsetting business benefits to TMX Group. The Maple Offer would further increase TMX Group's net debt to 3.7x LTM EBITDA assuming the debt-financed acquisition of Alpha and CDS proceeds as described in the Maple Offer.
• Maple's disclosure of its future business plans is inadequate — The Maple Offer provided no new information concerning Maple's future business plans and strategy for TMX Group, particularly with respect to its projected domestic operating model, plans for international growth and expansion or future pricing model.
• The disclosure about Alpha Group and CDS is inadequate — No formal financial valuation information was provided regarding Alpha Group or CDS, only “illustrative” values on which TMX shareholders are not able to rely. Further, no historic financial information has been presented on Alpha Group. This lack of information increases the uncertainty of the value of the Maple shares, which constitute a substantial portion of the consideration under the Maple Offer.
Merger with LSEG is Superior
The reasons why the TMX Group Board believes the LSEG merger is superior to the Maple Offer are detailed in TMX Group's Management Information Circular dated May 25, 2011. The reasons, which will be further detailed in the Directors' Circular, include the following:
• The LSEG merger provides an opportunity to participate in the growth of a globally positioned exchange group — Under the LSEG merger, shareholders will participate in the strongly positioned global growth opportunities of LTMX Group.
In contrast, the Maple Offer restricts opportunities to participate in future growth by limiting the number of shares of Maple that may be issued to shareholders. Under the Maple Offer, 70% of shareholders' current shareholdings will be extinguished in exchange for cash. The Maple shares they will receive will represent a minority interest in a highly leveraged entity and Maple has not identified any meaningful growth prospects which would cause the value of that minority interest to grow in the future.
• The LSEG merger is fair to shareholders from a financial point of view — The
TMX Group Board believes, having considered the advice of its financial advisors, among other things, that the financial consideration offered by Maple is inadequate given that the Maple Offer entails a change of control of TMX Group, and that the consideration to be provided to TMX Group shareholders in the LSEG merger is fair from a financial point of view.
• The LSEG merger creates the opportunity for cost savings and revenue synergies — The TMX Group Board expects that the LSEG merger will create cost savings and revenue synergies, thereby positively impacting earnings.
In contrast, the Maple Offer does not describe how any tangible cost savings or revenue synergies will be achieved.
• The LSEG merger is expected to be accretive — The LSEG merger is expected to be accretive to adjusted earnings per common share, after taking into account expected cost savings.
In contrast, the additional leverage contemplated by the Maple Offer generates much, if not all, the earnings accretion described in the Maple Offer.
• The LSEG merger provides benefits of scale and scope — Under the LSEG merger, the scale of the merged group would increase. The merged group will benefit from this increase in scale by being able to combine resources to share the costs of the significant investments in technology and other areas required to effectively compete globally. In addition, the merger provides for the sharing of new and existing products and services through a global distribution model.
In contrast, the Maple Offer does not increase the scale or scope of TMX Group, while significantly increasing TMX Group's leverage. This would significantly impede the ability of TMX Group to effectively compete with larger exchange groups.
• The LSEG merger is based on agreed commitments to obtain regulatory approvals — The merger agreement contains extensive commitments that LSEG is required to make in order to obtain the regulatory approvals required in connection with the LSEG merger. These include detailed undertakings that LSEG has agreed to provide Canadian regulators to address areas of regulatory significance.
In contrast, the Maple Offer does not describe how Maple would obtain the multiple regulatory approvals required for the Maple Offer to be completed. This creates significant uncertainty about the viability of the Maple Offer. The Maple Offer does not provide any compensation to TMX Group if the required regulatory approvals are not obtained.
TMX Group is filing a supplemental information statement to its Management Information Circular dated May 25, 2011 that further describes the dividend enhancements agreed to by TMX Group and LSEG. These dividend enhancements will also be reflected in an amendment to the merger agreement dated June 22, 2011. The supplemental information statement and the amendment to the merger agreement will be available on SEDAR atwww.sedar.com and on TMX Group's website at www.tmx.com.
Soliciting Dealer Group
TMX Group also announced that it has retained BMO Nesbitt Burns Inc. to form a soliciting dealer group comprised of members of IIROC and participating organizations of Toronto Stock Exchange to solicit TMX Group shareholders to vote in favour of the merger with LSEG. TMX Group has agreed that if the merger is approved by TMX Group shareholders, it will pay to a soliciting dealer a solicitation fee of C$0.15 per TMX Group share in respect of each TMX Group share that is voted in favour of the merger where (a) such soliciting dealer's name appears on a form of proxy or voting instruction form, or (b) if no such name is contained on such form of proxy or voting instruction form, the TMX Group share is held in a trading account with such soliciting dealer. The aggregate amount payable to a soliciting dealer with respect to any single voting beneficial holder will be subject to a minimum payment of C$85 and a maximum payment of C$1,500, and no solicitation fee will be payable in the case of a beneficial owner of less than 500 TMX Group shares. BMO Nesbitt Burns Inc. will also be reimbursed by TMX Group for all reasonable costs and expenses incurred by it.
TMX Group Shareholder Meeting
As previously announced, TMX Group will hold its Annual and Special Meeting of shareholders to approve the merger and other resolutions on June 30, 2011 at 10:00 a.m. (ET). The meeting will be held at the Design Exchange, 234 Bay Street, Toronto. For information about the merger and how to vote, please visitwww.tmx.com/merger.
It is essential that TMX Group shareholders vote as soon as possible. TMX Group BLUE proxies must be received no later than June 28 at 5:00 p.m. (ET). Even if shareholders have already voted using the dissident proxy, they have every right to change their vote simply by executing and submitting the Blue form of proxy; it is the later-dated proxy that will be counted. Shareholders who require assistance in voting their proxies may direct their inquiries to TMX Group's proxy solicitation agent, Phoenix Advisory Partners, 1-866-793-5697 orinquiries@phoenixadvisorypartners.com.
Caution Regarding Forward-Looking Information
This press release contains “forward looking information” (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of this press release. Examples of forward looking information can be identified by the use of forward-looking words such as “plans”, “expects”, and “expected”. Forward looking information, by its nature, requires us to make assumptions and is subject to significant risks and uncertainties which may give rise to the possibility that our expectations or conclusions will not prove to be accurate and that our assumptions may not be correct. These factors, many of which are beyond our control, include: market competition; business and economic conditions generally; the level of trading and activity on our markets, and in particular trading in our key products. Additional information about these and other factors are located in reports filed with Canadian securities regulators.
We have no intention to update this forward looking information, except as required by applicable securities law. This forward looking information should not be relied upon as representing our views as of any date subsequent to the date of this press release.
Accounting Matters
Net debt / EBITDA is a non-IFRS measure and does not have a standardized meaning under IFRS and, therefore, may not be comparable to similar measures presented by other peers.
