TMX deal could test Canadian capitalist bona fides
By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
More than the Queen’s visage on their money binds the financial centers of London and Toronto. They are two of the world’s preferred destinations for companies raising capital in the mining and metals businesses. So a sort-of merger of equals, like the one announced by TMX Group and the London Stock Exchange, carries strong industrial logic.
But without a premium offered to shareholders of TMX — the $3 billion operator of the Toronto and Montreal bourses — there’s still a chance for interlopers from New York, Chicago or Asia to spoil the royal wedding. That would put Canada’s already-questionable capitalist bona fides to the test.
Under the announced deal, TMX shareholders will own around 45 percent of the combined group and seven of 15 board seats. LSE boss Xavier Rolet remains as CEO, with TMX’s boss taking the role of president.
The combination will boast the largest collection of public miners, ranging from global heavyweights Xstrata, Rio Tinto and soon-to-be public Glencore to the smaller, riskier enterprises that have sought comfort on Toronto’s Venture Exchange and in Bay Street’s eco-system of financiers focused on natural resources.
It’s precisely this emerging specialization that makes TMX attractive — and could entice NYSE Euronext (though it now appears occupied with merger talks of its own with Deutsche Boerse), Nasdaq OMX , Chicago’s CME Group or Hong Kong, whose allure as a mining marketplace has won it recent high-profile listings. Moreover, it is not obvious that a deal with London would yield more synergies. And all of these potential suitors to TMX also have greater financial firepower.
The question is whether money would be allowed to do the talking. TMX shareholders might prefer a juicy cash offer to a no-premium stock takeover by an Anglo-Italian-Emirati-Qatari consortium run by a Frenchman. But any buyer seeking more than 10 percent of TMX must receive approval from Ontario and Quebec securities regulators. And taking control would require the federal government’s say-so in Ottawa.
Just three months ago, Ottawa rejected BHP’s bid for Potash Corp of Saskatchewan for reasons that it has still not entirely articulated. If the Canadian government thinks a hole in the ground is worthy of such capitalism-crushing protection, it’s hard to see how it would let its premier financial exchange go to the highest bidder.