Stock in TMX Group Inc. was down as much as 10.6 per cent Monday in a move one well-known investor said was probably linked to arbitragers divesting their positions in the recently-acquired owner of the Toronto Stock Exchange.
"My sense is the arbitragers are unwinding — that would be my guess," said Tom Caldwell, chairman and CEO of Caldwell Financial, after shares in the operator of Canada's major stock exchanges fell more than 10 per cent in early trading.
The issue later recovered a little and by the close of trading was down $2.75, or 5.53 per cent, at $47.00.
The big drop, on relatively low volume, came on the first trading day since Friday's announcement that the long-extended, $50 per share offer by Maple Group Acquisition Corp.— a consortium of 12 Canadian financial institutions formed for the bid.
By the Friday deadline, some 95.4 per cent of outstanding TMX Group shares had been tendered to the offer, worth a total of about $3.8 billion.
Under deals made with provincial and federal securities regulators, Maple pledged that it would not own more than 80 per cent of TMX shares — leaving 20 per cent in public hands.
To maintain the promise, Maple, now the owner of the recently renamed TMX Group Ltd., will return the 15.4 per cent of shares tendered but not acquired to TMX Group shareholders.
All shares that weren't picked up by Maple, now TMX Group Ltd., will be exchanged for shares of the successor company on a one-for-one basis.
The offer by Maple, a consortium of Canadian banks, pension funds and investment firms, cleared its last major regulatory hurdles when the federal Competition Bureau and securities regulators in B.C. and Alberta signed off on the takeover last month.
Arbitragers who bought TMX stock in order to tender it to the offer would have, in many cases, acquired their positions several weeks ago at around $45 a share before the regulatory votes.
Caldwell noted that with about 91 per cent of tendered shares being taken up in the offer, arbitragers would make a $5 profit on that percentage of their holdings.
"Then (the rest of ) that stuff you would just blow off at $45 or whatever the market is and move on to your next trade because it's over," he said.
"So I think its the (arbitragers) unwinding their positions and moving on to the next trade because the people who own TMX now will be investors as opposed to arbitragers, they will be investors looking at it on a go-forward basis on yield, earnings growth, that king of thing."
Caldwell said his firm tendered all its holdings but did buy back "a little bit of stock today" when the issued dipped 10 per cent, figuring the drop was a little overdone, at least in the near term.
"Listen, I sold the stock at $50 yesterday and if I can buy it at $45 today that probably makes some sense," he said. "I'm just replacing a tiny bit, not the full position ... just on the chance that I might get a flip here, that we might bounce a bit and that fundamentally it's probably not bad value here."
The new TMX Group now owns the Toronto Stock Exchange in addition to the alternative Alpha exchange and the country's largest clearing house CDS, controlling some 90 per cent of trading in Canada.
Monday's low volume trading comes as the deal leaves significantly less stock in public hands.
"Fundamentally going forward, you're going to have a very small float of stock somewhere under 10 million shares that will actually be traded on the exchange," Caldwell said.
"So it won't be an active institution-type trader. It'll still trade and it will be a interesting company. But that's the negative (although) it might be a good retail vehicle."
The company still has "a decent yield" of around 3.5 per cent and "a very good position in the Canadian market," Caldwell said.
"If you like Canada, this business should do reasonably well in that it has about 90 per cent of trading, controls the derivatives and now clearing and settlement as well, which is a very good business."