Blogs & Comment

TMX/LSE merger fight heats up

Banks may make exchange merger more controversial with competition-killing counter bid

A funny thing is happening on the way to finding a dancing partner for TMX group, which runs Canadian stock exchanges such as the Toronto Stock Exchange.

Critics of the proposed $7-billion merger between TMX and the London Stock Exchange first insisted the deal was bad for Canada a la Potash Corp. Now, after failing to generate public opposition, institutional opponents are contemplating making their own bid. And it is—wait for it—worse for Canada.

The “no” camp used to complain the deal wasn’t a merger of equals, insisting it would cost Canada regulatory control of listed companies. Kevan Cowan, president of the TSX, countered those concerns in a Canadian Business story.

Simply put, Cowan noted the merger is of parent operations, so the way local exchanges operate will not dramatically change because they will still function independently and be regulated by Canadian watchdogs.

As for control, the merged company will run exchanges in Britain, Canada and Italy, where the LSE controls Borsa Italiana. And while Canadian ownership of local exchanges will be diluted, at least initially, directors appointed by TMX operations will outnumber the ones put forward out of Britain and Italy.

This deal is widely supported by the business community. As pointed out by Lorne Abony, CEO of Mood Media, which trades in both markets, the merger would it make it faster, easier and cheaper for Canadian companies to tap into another pool of capital by listing overseas, where some major institutional investors must limit shareholdings to London–listed companies.

Nevertheless, the critics are now attacking the benefits to TXM shareholders, noting mergers do not always pay off. That, of course, is a TMX shareholder concern, not anyone else’s business, nor an issue fit for public debate.

What could be a national issue, however, is the possibility of a counterbid from a group of financial institutions that oppose the LSE deal.

Bay Street is buzzing about an alternative takeover bid being considered by investors in Alpha Group, a trading platform that competes with the TSX. But while combining Alpha and TMX might make sense for Alpha shareholders that don’t like the LSE deal, it would also reduce competition—which would be bad for Canada.