The London Stock Exchange (LSE) is in advanced talks to take over the owner of the Toronto Stock Exchange (TSX), a deal that would create a major center for trading mining shares if it overcomes likely political opposition in Canada.
The LSE and TMX Group said on Tuesday they were discussing the formation of a trans-Atlantic exchange operator with a market capitalization of more than US$6.8 billion.
It would instantly become the world’s premier venue for trading mining and energy shares, a business whose value has surged along with the boom in commodity prices.
The talks come as the Singapore Exchange works to push through its proposed US$7.8 billion acquisition of Australian stock exchange operator ASX, a deal that has run into strong opposition in Australia.
Likewise, an LSE-TSX deal might face hurdles in Canada, where foreign takeovers of high-profile companies have become a sensitive political issue.
“Consolidation in exchanges is likely to continue because of globalization,” said Subodh Kumar, chief investment strategist at Kumar & Associates in Toronto. “The issue for European exchanges is how they can compete with the New York-based ones for these large pools of capital.”
The recent deal activity signals the return of blockbuster takeovers in the exchange industry after a period of relative quiet that followed the New York Stock Exchange’s purchase of Euronext in 2007 and NASDAQ’s takeover of Europe’s OMX in 2008.
“Exchange consolidation is absolutely front and center again,” said Edward Ditmire, exchanges analyst at Macquarie, pointing to cost synergies as a likely motivation for the talks.
“Both of these groups have made substantial investments in their technology platforms, and I’d expect them to streamline over a more unified set of systems,” he said.
Some of the largest mining companies in the world are listed on LSE, while TSX boasts a stable of big gold companies, as well as huge numbers of junior miners listed on both the senior exchange and on the TMX-owned TSX Venture Exchange.
“For the London Stock Exchange, it’s great. You get into commodities more,” said Paul Ma, portfolio manager at McLean & Partners Wealth Management in Calgary.
Even so, Ma thinks a deal would have less than a 50 percent chance of passing muster with the Canadian government, which could face an election as early as this spring.
In November, the Conservative government blocked a US$39 billion bid by Australia’s BHP Billiton for Potash Corp after the deal stirred opposition in the fertilizer producer’s home province, Saskatchewan, a Conservative stronghold.
“The Canadians might look at [Singapore’s bid for ASX] and say, ‘why do this?’ The Toronto Stock Exchange is a symbol of Canadian pride just like Potash was,” Ma said.
However, Andre Cappon, president of CBM Group, a New York-based consultant for global exchanges, said the deal would give LSE a much-needed North American partner and allow TMX to link up with a global partner without feeling swallowed by a US player.
“It’s very logical for Canada to try to preserve its financial market while trying to be a global exchange. They wouldn’t want to be in bed with a US exchange that would overpower them,” he said.