When Tom Kloet, TMX Group's chief executive officer, visited the Globe and Mail's editorial board on Tuesday, he stressed that revenue synergies are driving the proposed merger with London Stock Exchange PLC, not the cost side.
He even went so far as to make a strong distinction between the NYSE Euronext combination with Deutsche Borse, which is driven by technological cost synergies. His deal, he explained, was about growth potential.
Although TMX has already estimated cost synergies at $56-million a year, if you take Mr. Kloet at his word for just a second, what exactly does he mean? There has been a lot of talk about the benefits of a global resource exchange and the advantages of inter-listing, but very little explanation in practical terms.
For instance, companies can already inter-list, so why would a merger give them any more reason to do so? And why would a global resource exchange matter, when investors already can throw their money into any exchange they want with just the click of a button?
On the latter point, the best analogy we've heard looks back at Nasdaq's focus on tech stocks. Technically, the companies listed there could have gone to any exchange, but by congregating in the same place they built a buzz. And then the tech bubble cropped up and suddenly everyone was looking at that exchange. In other words, Nasdaq almost served as a marketing vehicle. The same could happen if resources stay hot.
As for inter-listing, TMX stresses that it's far too easy to overlook what's involved in reaching out to a second exchange. The exact language was that the barriers to doing so are "not insignificant." At the moment, if a company is listed on the TSX and wants to venture out to the LSE, the LSE looks at the application as if it's a company they've never heard of. That requires a lot more due diligence and paperwork (read: lawyer fees), and a longer review process.
If, however, TMX and LSE recognize each others' standards, companies will already be many steps ahead when they look to inter-list.
TMX points to its graduation program from its Venture Exchange as proof. A few years ago, companies that tried to move from the Venture up to the TSX faced a lengthy review, and TSX treated them as if they had never heard their names before. Once the two exchanges recognized each others' listing standards, the process was streamlined and more companies applied.
**This post has been updated with the cost synergies TMX has estimated.