Canada’s BHP decision puts TMX in penalty box
If the Canadian government thinks a hole in the ground is a national gem, TMX, the group that operates the Toronto Stock Exchange, probably qualifies as a diamond. As a result, it is likely to sit out further sector consolidation. That’s a shame — selling to a foreign buyer might help both the exchange and Canada itself.
Canada’s rejection Wednesday of BHP’s $39 billion bid for fertilizer producer Potash Corp of Saskatchewan under the Investment Canada Act has injected uncertainty into foreign bids for any sizable companies, particularly resource groups, in the country. For the moment the government may legally be unable to explain the decision while BHP considers an appeal, but it smacks of protectionism.
That’s a problem for any potential suitor for TMX, which also runs the Montreal stock market. Any buyer wishing to acquire more than a 10 percent stake in TMX must receive approval from Ontario and Quebec securities regulators — and a foreign buyer seeking control would almost certainly need a nod from the federal government in Ottawa.
True, the $2.65 billion company’s shares haven’t suffered immediately from the Potash decision. But this is probably due to a sharp rise prices for commodities following quantitative easing in the United States. If anything this highlights the exchange’s attractions as a marketplace for the global mining and natural resources industries.
Yet consolidation is heating up and TMX could be left behind. Last month, The Singapore Exchange agreed to buy its Australian rival. If the deal goes through it ratchets up the competition for Bay Street. The combination of Asian capital with Australian expertise in listing and financing miners might create a potent new rival. That was the stated intention of the two when they announced their merger.
For the moment, Toronto punches far above its weight in mining, especially when it comes to small, risky companies. About half the world’s mining groups are listed on Toronto’s main exchange and its Venture Exchange. Moreover, the city has built up an eco-system of banks, advisers, specialized analysts and investors, lawyers, publicists and accountants around natural resources businesses.
Being part of a global marketplace, whether it’s the new Singapore-Australian nexus, London or New York might add to this by injecting new technology and tapping further flows of international capital. Canada may decide otherwise, as it did with Potash. But if the world’s finance-hungry miners send their listings and capital elsewhere, the country will have only its protectionist leanings to blame.