The Globe and Mail reports this morning that, “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 (Ontario finance minister Dwight Duncan) 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.”
While British Columbia, Alberta and Quebec have an interest in the deal, “government officials in Ontario are the only ones expressing misgivings. …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.”
Significantly the article also reports, “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. …’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.'”
THE COUNCIL OF CANADIANS
Yesterday, the Council of Canadians sent letters opposing the stock exchange takeover to Ontario finance minister Dwight Duncan and federal industry minister Tony Clement. Those letters can be read here. Our media release on this today can be read here.
On February 9, the day the deal was announced, the Toronto Star reported that, “The head of a nationalist watchdog group fears allowing the two exchange companies to combine would mean a loss of jobs, both at the exchanges themselves, and among the broader financial sector, as more firms choose to list their stocks in London. ‘We’ve watched this happen so many times when Canadian companies get taken over. At first, they say ‘it will be good for you, and we’ll keep a Canadian headquarters,’ but inevitably those jobs shift to the home base,’ said Maude Barlow, national chairwoman for the Council of Canadians. If Canadian companies do shift their listings to London, England, they could be following financial rules set outside this country, Barlow fears.”
“Barlow, meanwhile, pointed to U.S. Steel’s 2007 takeover of Stelco and Brazilian mining giant Vale’s takeover of Inco as examples of what can happen when foreign companies take over Canadian firms. ‘U.S. Steel told the Harper government it would keep jobs here when it took over Stelco and then laid off hundreds. Ditto Brazil’s Vale when it took over Inco in Sudbury, leading to an awful and bruising strike.’ Barlow isn’t convinced by the companies’ description of the stock exchange deal as a merger of equals. ‘I don’t care how they sugar-coat this, it’s clearly more a takeover than a merger. London shareholders get more of the company and the chair of the London exchange is the chair of the combined company,’ Barlow said.”
“This isn’t just a takeover of a widget factory, Barlow argued, but something far more important. If a mining company — or any other firm — doesn’t like the rules in Toronto, the new combined exchange would make it easier for them to shift to London, where the rules could potentially be more favourable, she said. ‘We’re talking about the right to regulate our financial system. When you allow a major financial institution to be taken over like this, that’s what’s at stake,’ Barlow said.”
The Canadian Press also reported on February 9 that, “Maude Barlow of the Council of Canadians expressed concern that the company would effectively be foreign owned, adding that the deal will likely result in job losses and the relinquishment of Canadian regulatory control as the exchanges become disconnected from any one jurisdiction. ‘Any decisions made around standards regulations, where this money goes, how it’s used in the end, it will be much harder for us to have a say in that here in Canada.’”
Today’s Globe and Mail article is at http://www.theglobeandmail.com/globe-investor/tmx-deal/ontarios-finance-minister-challenges-proposed-tmx-lse-merger/article1912413/.