Analysis: Canada election muddies waters for LSE-TMX deal

TORONTO Mon Mar 28, 2011 4:39pm EDT

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TORONTO (Reuters) - Canada's federal election could add a fresh element of uncertainty to the London Stock Exchange's (LSE.L) proposed C$3 billion ($3.1 billion) takeover of TMX Group (X.TO), a deal that was already seen as far from a sure thing.

Opposition to the deal -- voiced by some of Canada's banks and Ontario's finance minister, among others -- may spread if politicians decide to turn the proposal into a political wedge issue, though there are no signs of that happening in the early days in the campaign.

"You might get a particular party that takes a strong position that could well impact the deal depending on what the final count of the House will be," said Janet Ecker, president of the Toronto Financial Services Alliance, an industry group, referring to Canada's House of Commons.

Opposition parties toppled the minority Conservative government on Friday, accusing it of sleaze and mismanagement. The no-confidence vote in Parliament set up a May 2 election.

Recent polls suggest the Conservatives will return to power and may even win a majority, suggesting there's little chance for a political upheaval within the government.

Even so, the campaign comes at a delicate time for the proposed takeover of the TMX, operation of the Toronto Stock Exchange and other markets. The deal is the near the beginning of a complex approval process, requiring assent from at least four provincial regulators and the federal government itself.

Still fresh is the memory of the federal Conservative government's surprise veto of BHP Billiton's (BHP.AX) attempted takeover of Canada's Potash Corp (POT.TO) last year, following opposition from the government of the company's home province of Saskatchewan.

The TMX deal has not as yet seemed to resonate with the public, but with five weeks of campaigning ahead, that could change.

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Opponents of the deal say it will marginalize Toronto as a financial center and dilute Canada's oversight of its markets.

The takeover, which values TMX at about C$3 billion, would give LSE shareholders 55 percent of the combined entity, and LSE CEO Xavier Rolet would retain the top job.

Marc Garneau, industry critic for the opposition Liberals, said the party was still doing research on the takeover before it comes out with a position.

"We want to get all of that information together before we make our own decision about this," he said.

The smaller New Democrats said the deal must include safeguards that ensure Canada benefits from the transaction.

Some doubt the issue will hold traction with the voting public.

While Saskatchewan Premier Brad Wall managed to stoke opposition to the BHP-Potash deal with fears that a key resource vital to employment was in danger of falling into foreign hands with the Potash deal, stock exchange ownership is seen as an issue less likely to capture the public's imagination.

"I don't think it's going to be a big issue, frankly," said David Baskin, president of Toronto-based Baskin Financial Services, although he said the picture could change if the Conservatives lose power.

"One expects that the Liberals would be reflexively against it," he said.

The varied opinions, common among other observers interviewed by Reuters, stem from the large number of unknowns in the deal, including whether the election campaign will have an impact on the timing of the approval process.

Canadian Industry Minister Tony Clement said last week the government was working on an agreement with the exchanges on the length of the review.

Under Canada's Competition Act, Clement has 45 days from when LSE files its application for approval to conduct the review. He can also extend the period by an additional 30 days.

TMX spokeswoman Carolyn Quick said as of Friday the exchange had yet to submit the application, making it difficult to gauge the impact of the election on the timing.

"The pending election certainly won't speed up the approval process although I'm not sure how much it will slow it down," said Alison Crosthwait, an analyst at broker Instinet.

($1=$0.98 Canadian)

(Additional reporting by Solarina Ho, Pav Jordan and David Ljunggren; Editing by Frank McGurty)

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