By BOYD ERMAN AND KAREN HOWLETT
From Thursday's Globe and Mail
Heads of Toronto and London stock exchanges try to convince Ontario government of proposed deal's meritsThe architects of a transatlantic deal between the Toronto and London stock exchanges tried to win over wary politicians on Wednesday with assurances that "local markets are here to stay" and Canadian markets would continue to be regulated domestically.
But Tom Kloet, chief executive officer of TMX Group Inc. X-T and Xavier Rolet, his counterpart at the London Stock Exchange, spent two hours on Wednesday parrying questions about whether the domestic company would be the weaker partner and whether enough is being done to protect Canada's interests if lawmakers approve the proposed $7-billion-plus deal. Finally, they were asked whether Canada's premier stock exchange could have found a more "robust" partner.
At issue during the first day of an all-party committee hearing at the Ontario legislature was the fact that shareholders of TMX Group, owner of the Toronto Stock Exchange, would end up with seven of the 15 seats on the combined entity's board of directors. With majority control outside Canada, committee members said, the board could make decisions that are not in the best interests of this country.
"Critics would say control rests with the others and the Toronto Exchange could become that of a branch office," Progressive Conservative MPP Peter Shurman said.
Gilles Bisson, a New Democratic MPP from Northern Ontario, noted that Canadian stock exchanges are leaders in attracting mining companies. The potential for new listings is enormous, he said, especially with so much activity taking place in the Ring of Fire, a mining exploration area in the James Bay Lowlands of Northern Ontario.
He questioned why there are no safeguards in the merger proposal that explicitly protect Canada's interests, and provocatively suggested that perhaps the TSX Group should take over the London exchange, even though the Canadian exchange is smaller than its proposed partner.
"There is fear over the long run that we could become second fiddle in our own backyard," Mr. Bisson said.
The TMX and LSE executives pitched a simplified version of their message at the politicians, dropping much of the industry jargon that has made it tough for some to understand the merger's implications, and taking direct aim at concerns that have been raised by politicians, notably Ontario Finance Minister Dwight Duncan.
They addressed the misconception that the Toronto and London exchanges would be merged into one big stock market, saying it would only be the holding company that would be combined while the local markets are "here to stay," and reiterated that Canadian markets would continue to be supervised by regulators in this country.
Mr. Kloet said that he believed the deal would add to employment in Toronto for bankers, lawyers and other workers who support listed companies.
And the TMX chief executive officer repeated the pitch that the merger would enable Toronto-listed companies to reach investors in London more easily. In a message perhaps tailored to the committee, Mr. Kloet argued that "if a mining company in Northern Ontario lists on one of your Canadian exchanges, we expect to be able to offer them a more seamless access to investors from Europe and other markets at listing fees that are competitive."
That appeared to resonate with the junior mining executive who appeared at the committee after the TMX-LSE delegation. Frank Smeenk, president of mineral exploration company KWG Resources Inc., said he believed the deal could be the "single best thing that has ever happened" for Canadian junior mining companies.
However, another speaker, venture capitalist Mark McQueen of Wellington Financial, called the idea that the merger would enable companies to raise capital more cheaply "the triumph of hope over experience."
Both Mr. Kloet and Mr. Rolet told reporters after the hearing that they thought the committee members asked excellent questions.
"We don't see this as politics," Mr. Rolet said. "We see this as a legitimate process."