Analysis: The devil will be in details of TMX-LSE review

TORONTO Thu Apr 14, 2011 5:52pm EDT

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TORONTO (Reuters) - London Stock Exchange's (LSE.L) takeover offer for Canada's TMX Group (X.TO) will have a better chance of success with a legislative panel seen supporting the bid, if dealmakers can stomach the conditions attached.

An all-party committee of Ontario provincial legislators is due to table its conditions and recommendations on the LSE's C$3 billion ($3.1 billion) offer next week, and respond to the patriotic outcry from politicians and some banks when the deal was first announced in February.

"My sense is they won't be too onerous," said Thomas Caldwell, whose firm Caldwell Securities is a major shareholder in TMX Group, parent of the Toronto Stock Exchange, Canada's main equities market.

"I reserve the right to be surprised, but I can't think of anything a politician would come up with that would be so outrageous as to sidetrack the deal."

Ontario, home to the Toronto Stock Exchange and Canada's financial center, formed the legislative committee to review the deal soon after it was proposed, led in large part by concerns voiced by provincial Finance Minister Dwight Duncan.

The report will not be legally binding, but it is seen as a starting point for provincial securities regulators and federal government officials who will have to approve the deal in a multilayered process that won't be over for months.

"This will be the first sort of methodical exploration of the issues," said Alison Crosthwait, director of global trading strategy at Instinet.

"They had hearings, they heard from all the parties, then they went away and they thought about it and they've come up with what they think, and so it certainly will be considered by the provincial regulators."

The TMX-LSE deal is one of several proposed exchange mergers around the world as major players look to build scale and cut costs amid increasing competition from alternative trading platforms such as dark pools.

U.S. exchanges Nasdaq OMX (NDAQ.O) and IntercontinentalExchange (ICE.N) are vying with Germany's Deutsche Boerse (DB1Gn.DE) for NYSE Euronext NYX.N

Singapore Exchange Ltd (SGXL.SI) recently called off its takeover attempt ASX Ltd (ASX.AX) after the Australian government formally rejected the offer.

MINING AND RESOURCE POWERHOUSE

The proposed takeover of TMX Group by the LSE would create a $7 billion transatlantic exchange and create a powerhouse in mining and resource equities, doing $4 trillion in annual trading. Along with the Toronto Stock Exchange, TMX Group owns the TSX Venture Exchange for small-cap companies and the Montreal Exchange, Canada's main derivatives bourse.

However, Canadian critics say the deal would mean losing control of the country's capital markets to a holding company in London.

"It's hard to prejudge when I don't know what the committee is recommending specifically," Janet Ecker, president of the Toronto Financial Services Alliance and a former Ontario finance minister, told Reuters on Thursday.

Sources have said the legislative report -- to be presented to the provincial legislature on April 19 -- will back the deal, while demanding more clarity on regulatory control, as well as guarantees regarding Canada's presence on the board of the new company, among other concessions.

Ecker speculated that the conditions could also try to protect Canada's interests in a likely subsequent round of exchange consolidation.

"I would be very surprised if the parties are not listening very carefully to the issues," she added.

"How far they can go on some of those things, it's hard to predict," she said. "The devil is in the details. Even on conditions, it's tough to say."

($1=$0.96 Canadian)

(Reporting by Claire Sibonney; writing by Pav Jordan; editing by Rob Wilson)

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