Northern Financial Corp. and its wholly owned subsidiary, Northern Securities Inc., are opposing the proposed acquisition of the Canadian Venture Exchange by the Toronto Stock Exchange

Northern argues that the value of the CDNX far exceeds the price the TSE has agreed to pay. Northern’s estimates that the value of the CDNX is in the range of $83 million to $91 million, which substantially exceeds the $50 million price that offered by the TSE.

The company’s valuation of the CDNX is based on two methodologies: the discounted cash flow valuation approach and the comparable market multiples valuation approach, which takes into account the values of publicly traded stock exchanges.


Northern is a member of the CDNX and a Participating Organization of the TSE, but is not a shareholder of the TSE. Northern acquired a Class A share of CDNX in January 2001 at a cost of $30,000. Under the proposed acquisition of CDNX, Northern would receive $381,679.38 for its share which would provide Northern with a healthy return on its CDNX investment. However, Northern believes that the value of CDNX far exceeds the price the TSE has agreed to pay.

Northern says that although the TSE’s proposal may not present any problem in a hypothetical case where exactly the same shareholders of CDNX are shareholders of the TSE, there are about 13 shareholders of CDNX who are not shareholders of the TSE, including Northern. According to Northern, non-TSE CDNX shareholders have a very real interest in the price paid by the TSE for CDNX being equal to fair value.

Northern also argues that the TSE and the CDNX should be expected to comply with the same related party transaction corporate governance standards that they expect of the public companies they regulate. In the acquisition process and disclosure material to date, Northern is of the view that in their proposed transaction the TSE and CDNX have failed to follow normal corporate governance procedures that would apply in any typical merger or acquisition transaction involving a public company especially where the transaction involves a related party. The related parties in this case are those shareholders of CDNX who are also shareholders of the TSE.

Northern criticizes the CDNX board for not appointing an independent committee to deal with the proposed sale of CDNX, including the negotiations with the TSE. It claims the CDNX Board has failed to recognize the related party nature of the transaction where the shareholders of the CDNX are substantially, but not exclusively, shareholders of the TSE.

Northern also takes the CDNX board to task for failing to recognize that about 13 of its shareholders are non-TSE CDNX shareholders, and failing to solicit competing offers from other stock exchanges following the initial approach by the TSE.

Northern also argues that since o financial advisor was retained to advise the CDNX board on the value of the CDNX, the management information circular of CDNX doesn’t include a valuation and fairness opinion reporting on the value of CDNX.