LSE, TMX abort merger plans, leaving both vulnerable

TORONTO/LONDON (Reuters) - The London and Toronto stock exchanges abandoned plans for a C$3.6 billion tie-up on Wednesday, turning both into takeover targets in a world already facing a wave of exchange consolidation.

The failed bid from the London Stock Exchange, opens the door to a hostile C$3.8 billion offer for TMX Group from Canada's Maple Group consortium, which promised a made-in-Canada alternative to a takeover that would have put a big domestic asset in foreign hands.

It also turns the spotlight on the LSE as a target as exchanges consolidate to grow and broaden geographic reach, and to fight off rivals and new market entrants.

"While the failed deal probably puts an end to TMX's M&A ambitions, other exchange operators will likely continue to look for partners. This reinforces my belief that we should expect more mergers, not less," said Ed Ditmire, New York based analyst for Macquarie Securities.

In brief statements issued just one day before a crucial shareholder vote, the exchanges said they realized TMX shareholders would not give them the two-thirds majority they needed to approve a friendly deal that would have given The LSE 55 percent of a new powerhouse in resource and energy equity.

TMX Group, operator of the Toronto Stock Exchange, said it would now review opportunities, including the Maple offer.

EMBARRASSING CLIMBDOWN

Abandoning the plan represented an embarrassing climbdown for both exchanges, but especially for the LSE, which is left red-faced after a courtship that began in February.

The LSE could be vulnerable to an approach from someone like Nasdaq OMX, which twice tried and failed to buy the LSE in 2006-07 and which has been waiting in the wings after it pulled in May its bid to acquire NYSE Euronext -- a challenge to NYSE's deal with Deutsche Boerse.

Nasdaq OMX said two weeks ago it had bid to buy a minority stake in LCH.Clearnet, Europe's largest clearing house to strengthen its foothold in the region.

"The industry is definitely still going to continue to consolidate," said Justin Schack, a vice president of market structure analysis at New York-based agency brokerage Rosenblatt Securities.

"LSE and TMX were both in positions where they weren't quite big enough or diverse and fast-growing enough to control their own destiny. They did the best deal that they probably could. Now that that's not going to happen TMX has Maple to deal with, while LSE is out on its own again, and there aren't many partners out there where they could be the acquirer rather

Maple, whose all-Canadian members include four major banks, five huge pension funds and North America's top life insurer, has offered C$3.8 billion for TMX, mostly in cash.

LSE's mostly-stock offer was worth about C$49 a share.

It would have needed a green light from a government that last year vetoed a big international takeover as not being in Canada's best interests.

Analysts said that was far from a sure thing, especially given the kind of nationalistic sentiment that prompted Australia to nix a Singapore offer for its main exchange.

TMX shares touched a high of C$44.80 after the deal was scrapped before easing back to C$44.60 by mid afternoon. That's still below the Maple offer price of C$50 a share.

Maple also wants to wrap in Alpha, Canada's biggest alternative trading venue, and the CDS stock trading clearing system. That would give it a market share of more than 80 percent and leave it facing anti-trust concerns.

(Additional reporting by Euan Rocha, Solarina Ho, Jonathan Spicer, Allison Martell and Trish Nixon; editing by Janet Guttsman)

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