TMX says was in talks with third party before LSE

TORONTO (Reuters) – TMX Group, Canada’s leading stock exchange operator, held talks with a third party for nearly a year before they were derailed by regulatory and valuation concerns, and before more fruitful talks ramped up with London Stock Exchange Group.

According to a management information circular on Wednesday, which urges shareholders to approve LSE’s takeover proposal, TMX Group said it held on-again-off-again talks with a third-party from February through November 2010. Talks were formally terminated on Jan. 25, 2011.

“TMX Group and the third party were not in agreement with respect to proposed undertakings regarding net benefits to Canada,” the parent of the Toronto Stock Exchange said in a 731-page circular to be mailed to shareholders.

Canada’s Globe and Mail newspaper said on its website on Wednesday that the third party was Nasdaq OMX Group, citing a source familiar with the situation.

TMX Group said the premium offered to its stock price had also eroded over the period of the talks, with no move from the third party to raise its offer.

“In addition, as initial discussions with LSEG relating to a merger of equals commenced and progressed, TMX Group considered that such a transaction was superior to an acquisition by the third party and considerably more likely to be achievable.”

TMX shareholders will vote on June 30 on a proposed $3 billion takeover by LSE. They are also facing a hostile, C$3.6 billion ($3.7 billion) bid from a group of Canadian banks and pension funds, known as Maple Group, who say the London deal would strip Canada of control of its capital markets.

The LSE deal, made public on Feb. 9, must pass muster at the national and provincial levels in Canada, including a approval under the Investment Canada Act, securities regulatory approvals and certain antitrust approvals. (Reporting by Pav Jordan; editing by Rob Wilson)