Taking stock of the TMX-LSE merger possibility

Published in the Ottawa Business Journal newspaper and website.
March 7, 2011 (March 10 on OBJ.ca)

Click here to view this article on OBJ.ca.

Observers say combination will likely mean status quo or benefit for Ottawa companies

The proposed $7-billion merger between the Toronto Stock Exchange’s parent company and the London Stock Exchange may be causing some consternation in political circles, but in the Ottawa community, it seems it’s business as usual.

“At this point of time (the details are) not material enough; those companies that are planning to go to (the TSX) will go ahead anyway,” said Brent Timmons, a lawyer with BrazeauSeller LLP.

For a company looking to go public, the U.K. exchange currently entails “more hoops, hurdles and costs” than the Toronto board, said Mr. Timmons, which would be a definite downside of a marriage between the LSE and TSX parent the TMX Group, if it leads to the shifting of regulatory operations to London.

However, he notes that’s unlikely, especially considering the comments from the heads of both boards at last week’s hearings before a provincial committee to determine the fate of the merger. TMX Group chief executive Tom Kloet and LSE head Xavier Rolet said the regulatory structure of the Canadian exchange would stay the same, with only the holding company becoming a combined entity.

In fact, they emphasized that it would be much easier for TSX-listed firms to access the capital markets in Europe, broadening the financing opportunities beyond the often cash-starved environment in Canada.

That’s something that has drawn the attention of both Mr. Timmons and Michael Gerrior, head of the business law group at Perley-Robertson, Hill & McDougall LLP, especially when considering the talk concerning how the junior mining companies in Ottawa and beyond will really benefit from a TMX merger with the resource-heavy LSE.

“For the mining business, the LSE is an exchange of first choice,” said Mr. Gerrior. “(Mining firms) are going to be able to take advantage of this to raise more money and get a broader range of investors.”

With a slew of junior mining companies choosing to set up their corporate offices in Ottawa in recent years, Mr. Gerrior said he sees potential for local growth due to the increased access to capital. “I think the firms will have the opportunity to look for more mines and more resources, and hopefully they will expand their corporate headquarters to take advantage … I don’t see any downside.”

One thing seems clear, however: the merger isn’t likely to have a big effect on the number of companies that decide to go public, since regulatory issues are usually the least of the concerns firms face before being able to head to the public markets.

“Some that are on the border of going public might move a little quicker to avoid the possibility of the more stringent operations on the London side, but it’s not material,” said Mr. Timmons.

The TMX-LSE merger is currently awaiting federal and provincial approval, as the boards of both companies are unanimously recommending the deal. The combination will bring together a total of 6,700 listings on both exchanges with an aggregate market capitalization of $5.8 billion.

As well, the marriage will see the largest combined total of junior listings in the world, with approximately 3,600 AIM and TSX Venture Exchange listings.

The combined holding company is expected to see $56 million in revenues by the third anniversary of the transaction, growing to an estimated $160 million in annual run-rate revenue benefits in year five.

LSE shareholders will own a majority 55-per-cent stake in the merged company, while TMX Group stakeholders will control the balance.

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