August 13, 2012 Comments

Our stocks hung in okay today with the markets down a little.

I notice that the TMX Group was down 5.5% today.

This is not at all the same TMX Group as it was. Firstly it is in fact a different company. The Maple Group Acquisition Corporation bought the former TMX Group along with some other things (Alpha Trading Systems Inc. and the Canadian Depositary for Securities Ltd. Then they changed the name of Maple to TMX Group. But it’s actually a different corporation with different Board members.

Not only is this new TMX Group a different corporation (albeit the old TMX Group is its biggest asset and operation be far) but he new company is different in that it has been leveraged up with a lot of debt used to buy out 80% of the old shares for $50 each.

So, the point is that once this offer to buy 80% of the old TMX shares for $50 cash each was done there was no strong reason for the new company to continue to trade at $50. Perhaps management estimated the new company to be worth $50 so yeah somewhere close to $50 might be right.

From a share valuation perspective we have little to go on now as to what these new shares are worth. The history of the earnings per share under the old TMX will not be of much help. Earnings could be higher as there are new operations involved. But there is also debt now. I am not sure what is happening to the share count. It will take a year or so with the new structure to establish a new earnings level. (Though I suppose the buy-out offer gave some estimates).

Even the old TMX Group value of around $50 was not reflective of earnings it was simply reflective of the buy-out offer for 80% at $50.

To the extent the new TMX is free to set its own prices it is a monopoly an could be quite valuable indeed. But from murky details I read, the Ontario Securities Commission will have a hand in regulating the prices it charges. In that case the value of the new entity depends a lot on how it will be regulated.

My point is that just because the same trading symbol applies here, it is not really the same company. Technical analysts will be completely lost because (as in one article I saw today) they may assume it is the same company.

At this point I simply have no idea what the new TMX Group is worth. If I add it back to the list that will probably not happen until 2013 after the next annual report so that I would have something to go on.

I have been dismayed by what I perceived to be the poor and even misleading disclosure of TMX Group and Maple throughout this process. Given their position as regulators it is disturbing.