The head of the Toronto Stock Exchange, facing heat from an Ontario government that is skeptical about his proposed merger with the London Stock Exchange, emerged publicly to defend the deal, arguing that it poses no threat to jobs in the Canadian financial sector and will make domestic companies more competitive.
In an interview with The Globe and Mail's editorial board, Tom Kloet said he believes the $7-billion deal, announced last week, bears few similarities to the proposed takeover of Potash Corp. of Saskatchewan Inc. last year by BHP Billiton Ltd., which was ultimately denied by Ottawa on the grounds that it was not a benefit to Canada.
"I actually think you probably couldn't have two examples that were much more different between this and Potash," said Mr. Kloet, the president and chief executive officer of TMX Group Inc., the Toronto exchange's parent company. "It's very different from taking something out of the ground and distributing it." He pointed out that Canada will have seven board members, more than any other country.
Mr. Kloet is selling his merger against a backdrop of global consolidation. NYSE Euronext and Deutsche Boerse officially announced their proposed merger Tuesday, and Singapore Stock Exchange has made concessions to get Australian authorities on its side for its proposed takeover of the Australian Stock Exchange.
Drawing a distinction between TMX and Potash is an attempt by Mr. Kloet to save his deal from becoming as politically charged as BHP's bid was. For that very reason, Mr. Kloet stresses the deal with the LSE will only enhance Canada's capital markets, rather that put it at the whim of a global powerhouse, which is how some people viewed BHP in relation to Potash Corp.
The merger, he says, will not only raise awareness of Canadian markets around the world, but will also allow Canadian companies to prosper.
"If we help our companies raise capital in a more efficient manner, it's got to be good for Canada, it's got to be good for the development of our economy," he said. This efficiency he speaks of stems from better access to more investors through listings on both sides of the Atlantic, as well as shared technological infrastructure.
"Whether this is good for Canada's capital markets or not, that should be the political driver and the business driver."
But Mr. Kloet is prepared for a strategic asset debate, should one arise. He believes the deal transcends protection because it has been structured so fairly. "Strategic asset or not, you have to let institutions that are involved in a competitive market engage in commercial transactions provided they respect the regulatory structure that's been set up," he said.
In terms of regulation, all existing TMX and LSE exchanges would continue to be regulated by the same bodies, like the Ontario Securities Commission and the AMF in Quebec. Moreover, the deal has been structured so that three board seats are guaranteed to be filled by Canadians regardless of what transpires in the future.
TMX is also emphasizing what will happen if it isn't allowed to merge. "Do we run the risk as this consolidation game continues to becoming somewhat marginalized? Yeah, I think there is a risk," he said.
Still, Mr. Kloet didn't shy away from the political aspect of his deal. "We respect that there's a political element to it," he said. "We look forward to having the chance to present in a comprehensive way the net benefits to Canada."
If the Singapore-Australia example is any indication, the political game could get quite heated. In fact, Singapore and ASX changed their deal's terms significantly Tuesday in an attempt to make it more politically palatable. Under the new terms, Australia gets more directors so that the board has an equal split with directors from Singapore.
Ontario Premier Dalton McGuinty said Tuesday that his province has the most at stake in the proposed transaction, because Canada's financial hub in Toronto is home to the country's premier stock exchange and tens of thousands of jobs.
"The federal government is doing what it must do in keeping with its responsibilities under a particular piece of legislation," Mr. McGuinty said. "We've got a different kind of an interest, which is how does it affect our economy. How does it affect our jobs. How does it affect our stature as the preserve of the best-regarded banking industry in the world."
Ontario's Opposition Leader, Tim Hudak, echoed many of the same concerns, saying that the exchange could be considered a strategic asset "in many ways."
Mr. Kloet tried to address the jobs question Tuesday. "I see no threat to jobs by this transaction," he said, adding that more work could come of it because Montreal's SOLA derivatives platform will get more use overseas, which could require more systems architects and developers.
However, Mr. Kloet was relatively mum on the topic of Ontario's Finance Minister Dwight Duncan's heated comments. "We look forward to working with him to describe the transaction [and]why it's a net benefit, and respect his position of authority and the decisions he has to make."
As for the federal government, "whether we are a strategic asset or not is up to others to decide," Mr. Kloet said. "What I will say is we are an enterprise that operates in a very competitive environment, and we have to be able to put together commercial arrangements that adhere to both the spirit and the letter of the law, but [also]allow us to compete both domestically and globally."
With files from Karen Howlett