Ontario's Finance Minister is challenging the sales pitch for a transatlantic deal between the Toronto and London stock exchanges and questioning whether it makes sense for Canada to join forces with an overseas partner.
Thomas Kloet, chief executive officer of TMX Group, owner of the Toronto Stock Exchange, and Xavier Rolet, his counterpart at the London Stock Exchange, met with the minister last week in a bid to win the province's support for their proposed transaction. But they failed to persuade him that the deal is in the best interest of Canada's capital markets.
"Not only are they not a very good storyteller," Dwight Duncan told The Globe and Mail on Thursday, discussing for the first time his meeting with the architects of the deal, "but if they have not thought through the communications of this, have they not thought through the substance of it?"
Other provinces, notably British Columbia, Alberta and Quebec, also have an interest in the proposed $7-billion-plus deal. But government officials in Ontario are the only ones expressing misgivings. While Quebec officials are cautiously supportive, Lloyd Snelgrove, president of Alberta's Treasury Board, is a fan, saying it would present a "great opportunity" for both the energy and mining sectors in his province.
Mr. Duncan is well aware that Ontario could be alone in raising concerns. But he said the stakes are much higher for the province - which is home to the TSE, Canada's premier stock exchange - and the 300,000 people who work in the country's financial capital. Government officials are worried about the spectre of jobs disappearing in downtown Toronto eight months before the provincial election.
The McGuinty government has the power to block the deal, but for now, it is happy to defer to Ottawa, Mr. Duncan said. He and federal Industry Minister Tony Clement talked on Thursday about the review Ottawa will do to determine whether the stock-exchange transaction would have a "net benefit" for Canada.
Mr. Duncan said the federal review, which could take up to 75 days, is the "logical first step." Despite differences of opinion among the provinces, he wants the country to speak with one voice.
If Ontario were to take pre-emptive action and "kill" the transaction, he said, he worries relations with other provinces might be jeopardized.
"Right now, Ontario can dramatically impact British Columbia, Alberta and Quebec," he said. "We really don't want to do that."
It will take much more than just sweetening the terms of the existing proposal to win over the McGuinty government. If the province ultimately accepts the argument that this country needs to participate in the global consolidation of stock exchanges, Mr. Duncan said, the best deal for Canada might be with the United States, its biggest trading partner, rather than with England.
Mr. Duncan is seeking answers to all of these questions, a process that began in earnest on Thursday when he met with Ed Clark, chief executive officer of Toronto-Dominion Bank. While Bay Street does not appear to have much antipathy to the deal, Mr. Duncan said he has heard from numerous people, including those in the financial community, who are clearly anxious about the proposed transaction.
He himself signalled from Day One that he has concerns about a transaction that would leave shareholders of TMX Group with a 45-per-cent stake in the combined entity.
"Here's what I know, based on what is in the deal right now," he said. "No. 1, control will rest offshore; No. 2, once you sell an asset like this, it's pretty darn difficult to get it back."
Mr. Kloet defended the deal in an interview with The Globe's editorial board this week, arguing that it will enhance Canada's capital markets and make domestic companies more competitive on the global stage.
But it is not just the structure of the deal that worries Mr. Duncan. The London exchange isn't a "particularly robust" market, he said, questioning whether the combined entity itself would be vulnerable to a takeover.
"Maybe we want to tie into the German-New York group," Mr. Duncan said, referring to plans unveiled this week by the owners of the New York and Frankfurt stock exchanges to join forces. "The United States is our biggest trading partner. There may be lots of reasons not to do that, but nobody has looked at this."
With a report from Carrie Tait in Calgary