Some of Canada's top business executives are speaking out in favour of the merger of the Toronto and London stock exchanges, arguing that it will help the country's capital markets and should not be blocked for political reasons.
In recent days, The Globe and Mail contacted every company in the S&P/TSX 60 index, along with a number of major institutional investors, private companies and smaller firms, to gauge the level of support for the $7-billion merger. The informal survey suggests there is broad approval for the deal among senior Canadian corporate leaders in a number of sectors - along with a few reservations.
The merger still requires approval at the political level, including the federal and Ontario governments. The latter has voiced the most skepticism so far about the deal's merits, with Ontario Finance Minister Dwight Duncan openly questioning whether the so-called "merger of equals" is truly equal and in the best interests of the province. Under the proposed structure, the CEO of the merged company will be based in London, and shareholders in LSE parent London Stock Exchange PLC will own 55 per cent of the merged company.
But reaction from CEOs and chief financial officers suggests that executives at many of Canada's largest public companies do not want politicians to step in. Corporate leaders are optimistic that a merger will benefit both traders, and firms seeking capital. Many executives added that it would be pointless to fight against the forces that are spurring consolidation in the exchange business globally.
The mood stands in contrast to the one that prevailed during last fall's debate over BHP Billiton Ltd.'s takeover attempt of Potash Corp. of Saskatchewan Inc. Back then, a number of top business leaders privately expressed serious doubts about whether the hostile deal would benefit Canada. The Harper government eventually concluded that it would not and turned down BHP.
But the executives also make it clear that the TMX Group and LSE will have to do a much better job selling their deal. While most executives who responded to The Globe were in favour of the merger, they want more details about what it will mean for public companies, traders, and the regulation of Canada's stock markets.
A significant number of respondents remain neutral, while a smaller proportion are outright skeptical about the merger's benefits and most declined to express any opinion at all. But none of those who responded said that government should stop the deal.
"It should have no impact on our capital markets and the government shouldn't get involved," said Vince Galifi, chief financial officer of Magna International Inc.
When citing potential benefits of the deal, more-efficient trading and access to capital were at the top of executives' lists.
"From an investor perspective, it's a great thing … I think it's very hard to deny that there is going to be a net benefit in terms of trading efficiency," said Leo de Bever, chief executive officer of Alberta Investment Management Corp. (AIMco), the province's investment manager.
But Mr. de Bever and others also expressed fears about the deal's unknowns. His main worry is ensuring that Canada's market regulation is adequate.
"How do you maintain national regulatory standards when it's not clear where this thing's sitting?" he said. "Is it in London or is it in Canada - whose rules prevail? In Canada we couldn't even get one national regulator organized, and now you're talking about international regulation."
That cautious stance is what the two exchanges will be working to overcome in the months ahead. TMX Group Inc., which is the parent company of the Toronto exchange, and LSE will have to persuade opinion leaders, politicians and regulators that they can demonstrate exactly how the transaction will benefit small companies seeking access to capital, large inter-listed firms, traders, investors and the cities in which offices will be based.
When it comes to the Ontario legislature, the exchanges are facing an uphill battle. TMX Group CEO Thomas Kloet and LSE head Xavier Rolet met with Mr. Duncan last week, but failed in their attempt to convince him of the merits of the deal.
While Mr. Duncan remains unsupportive, he said this week that he will defer to Ottawa's decision, for now. Federal Industry Minister Tony Clement told reporters in Toronto Friday that the government will "review the proposed transaction backwards and forwards. We will do that in particular with Ontario and Quebec, because they have a regulatory role with respect to this transaction. We're in the information compiling stage right now."
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