TSX IPO may hit $775-million
By ANDREW WILLIS
From Saturday's Globe and Mail
The Toronto Stock Exchange is being valued at between $575-million and $775-million by the investment dealers planning to take the exchange public this fall.
The TSX's long-anticipated initial public offering moved a step closer yesterday when investment dealers gathered in Toronto to organize what's expected to be a two-month-long sales effort.
Scotia Capital Inc. and Goldman Sachs & Co. are leading the TSX's debut. At a meeting at Scotia's Toronto head office, the pair set out the financial details of the IPO, including the proposed valuation.
The TSX posted a $30.1-million profit last year, on revenue of $180-million, meaning the exchange wants to sell shares at a price that's between 19 times and 25 times its trailing earnings.
For comparison, the publicly traded London Stock Exchange PLC is valued at 20.5 times last year's earnings, while the Australian Stock Exchange Ltd. — often cited as a model for the Canadian exchange — changes hands at 21 times.
Nasdaq Stock Market Inc., which started to trade two months ago, is valued at 28 times its trailing earnings. Nasdaq's thinly traded stock has fallen sharply in recent weeks, from $16.50 (U.S.) to close Friday at $9.70, up 40 cents.
Once the TSX's prospectus is cleared by regulators — it has already passed an initial review — Scotia Capital and Goldman Sachs are expected to sell about 65 per cent of the IPO. The six Canadian bank-owned dealers and Merrill Lynch also are expected to play major roles in the share sale, with a handful of smaller dealers each assigned responsibility for selling 2 per cent of the deal.
About 90 brokerage firms now own the 150-year-old Toronto exchange and Canadian Venture Exchange Inc.
These houses have about two weeks to decide whether they wish to sell shares in the IPO. If all goes according to plan, TSX shares are expected to start trading on the exchange next month.
The TSX changed its ownership structure two years ago, when the owners of 133 so-called seats got 20 shares for each seat, for a total of 2,660 shares. The TSX's book value is $302.2-million.
The exchange itself is not expected to take in any money from the IPO, as it doesn't need capital. The TSX had $191-million of cash on its balance sheet at the end of last year.
"The process that's playing out with the TSX is similar to what happened with the life insurers, when the policy holders got shares," said one investment banker working on the IPO. "Lots of smaller TSX shareholders must decide if they want cash, or equity."
Another investment banker familiar with the IPO said: "These are brokerage executives. They're buyers at one price, and sellers at a better price. The amount of stock that's put up for sale will reflect the valuation."
A number of investment bankers predicted that the brokerage houses that own TSX shares will end up cashing in between $200-million and $350-million of their holdings.
Of the 204 brokerage houses in Canada, 69 lost money in the first part of this year and 79 were in the red in 2001, according to statistics gathered by the Investment Dealers Association of Canada. |
