Major Canadian pension plans are rallying behind the proposed merger between TMX Group Inc. and London Stock Exchange Group PLC, according to sources, pitting them against a group of banks that oppose it.
Pension officials say they have analyzed the deal and believe that its merits, such as higher trading efficiency, outweigh its drawbacks. Their views, and the strong divergence of opinion that's materializing within the financial sector, will make it harder for politicians in Ottawa and Ontario to know whether to block the $7-billion merger, in which shareholders of LSE would wind up owning 55 per cent of the merged company. Politicians have already been reaching out personally to a number of influential CEOs in order to gauge the financial sector's support for the merger.
Senior people at the Ontario Teachers' Pension Plan, Canada Pension Plan Investment Board and the Ontario Municipal Employees Retirement System have been talking to one another about the proposed deal over the past week and a consensus appears to be forming.
While they have not chosen to take any action thus far, their views will carry a lot of weight in the broader debate.
Those three pension plans collectively manage close to $300-billion in assets. CPPIB alone has a stock portfolio of about $54-billion, including investments in more than 2,200 international and 700 Canadian companies. It prides itself on its ability to manage trading costs, and has recently been making use of algorithmic trading techniques and new technology to optimize its trades and minimize costs.
Pension plan sources say the impact that the deal will have on trading costs, liquidity and corporate access to capital are some of their key considerations. While they are concerned about national interests, sources say it would be hypocritical to have a nationalistic attitude when they are actively doing takeovers abroad. In recent years, Canadian pension funds have become a major force on the global deal-making stage.
OMERS chief executive officer Michael Nobrega has already expressed his personal view that the government should not block the deal, although he has not articulated an official view on behalf of the pension fund.
Teachers officials are also supportive of the merger, according to sources, while CPPIB is more hesitant about stating its position, although sources say it is generally optimistic about the impact of the merger. CPPIB, along with the country's largest banks, holds a stake in Alpha, an alternative trading system that is the TSX's largest domestic competitor.
Leo de Bever, CEO of Alberta Investment Management Corp. (AIMCo), said the deal "is good for market liquidity." And while he was initially worried that Canada might lose control of some regulatory oversight, he said he's now confident that issue can be addressed.
Last week National Bank of Canada, Canadian Imperial Bank of Commerce, Casgrain & Co. Ltd. and AltaCorp Capital Inc. added their names to a position paper conceived by Toronto-Dominion Bank that outlined reasons to be skeptical of the proposed merger.
However, a number of players, including Bank of Nova Scotia, declined to sign the paper, highlighting the divide that is growing within the financial community.