* Report will influence Ontario regulator's decision
* Kloet says Toronto exchange won't be regulated offshore
* CEO says Toronto leadership in resources will only grow
* Legislator fears TMX could become "second fiddle"
(Adds details, comments)
By Solarina Ho and Pav Jordan
TORONTO, March 2 The architects of the London
Stock Exchange's (LSE.L) proposed takeover of TMX Group (X.TO)
defended the transatlantic tie-up to skeptical lawmakers on
Wednesday as they faced the first of a series of government and
An Ontario legislative review of the deal that began on
Wednesday is not in itself legally binding. But it will likely
influence regulatory and federal government reviews that have
the power to derail the LSE's C$3.1 billion ($3.2 billion)
friendly takeover of TMX, operator of the Toronto Stock
In questions to the chief executives of the two exchanges,
Ontario legislators challenged the notion that the deal is
necessary if TMX is going to stay competitive with other
consolidating global exchanges. They echoed widespread concern
that Canada would cede authority over its own financial markets
if it let the deal go through.
The proposed combination has raised fears that the Toronto
Stock Exchange could become a "second fiddle in its own
backyard," lawmaker Gilles Bisson said as the hearings got
underway in Toronto.
Economic sovereignty is a touchy issue in Canada, and these
hearings come just four months after the federal government
blocked BHP Billiton's (BHP.AX) $39 billion bid for Potash Corp
(POT.TO), saying the Anglo-Australian miner's stewardship of
the world's largest fertilizer maker would not benefit Canada.
But TMX CEO Tom Kloet said control and regulatory
supervision of the exchange will stay in Canadian hands even
after the bourse's owner is folded into the larger London-based
"In short...Toronto Stock Exchange will operate for all
intents and purposes as before," Kloet told the all-party
For timeline on LSE-TMX deal: [ID:nN28155639]
For factbox on approval process: [ID:nN15252795]
For factbox on LSE and TMX history: [ID:nN08113490]
Speaking alongside LSE head Xavier Rolet, Kloet said the
combination would give Canadian companies increased access to
capital and would create a global leader in listings,
particularly in natural resources.
Jammed into a packed conference room in Ontario's
Romanesque provincial parliament buildings in downtown Toronto,
the executives were grilled by more than a dozen legislators.
Lawmakers posed pointed questions, though the overall mood was
The two exchanges have said the combined company could go
on the offensive as stock market competition intensifies
internationally, especially with Deutsche Boerse (DB1Gn.DE) in
takeover talks with NYSE Euronext NYX.N. [ID:nN28270191], and
the Singapore Exchange (SGXL.SI) trying to acquire Australia's
ASX Ltd (ASX.AX).
Some have speculated U.S.-based Nasdaq OMX Group (NDAQ.O)
could jump into the fray, and Rolet was noncommittal when asked
whether TMX and LSE would consider a three-way tie-up.
"I can't speculate on what might or might not happen or
what we could or should do," he told reporters after the
Some worry that a three-way deal or a merger with the
combined TMX-LSE down the road would further marginalize
Canada's influence on the company.
Lawmakers at the hearing raised concerns that Canada's
board representation at the company could be whittled down, and
complained that the takeover agreement did not contain enough
protections for Canadian interests.
"We may end up being in a diluted position that is not
entirely to our advantage," Bisson said.
Mark McQueen, CEO of private equity firm Wellington
Financial, suggested at the hearing that the government should
insist on a "golden share" that would allow it to veto any
future deal that threatens to dilute Canada's influence.
MORE HURDLES TO COME
Following the provincial hearings, the deal will go before
regulators from at least four Canadian provinces, and must also
be be approved by federal Industry Minister Tony Clement, who
surprised the market when he halted the BHP-Potash transaction
late last year.
The weight of public opinion is crucial as Ontario's
governing Liberal Party trails the Progressive Conservatives in
opinion polls ahead of an election in the province in October.
That said, Ontario politicians on all sides have so far
been united in criticizing the proposed deal.
The complex approvals process and risks about whether it
will go ahead has made investors cautious about the deal. TMX
shares ended 3.8 percent below the implied offer price on
Wednesday, after trading about 10 percent below the offer two
(Additional reporting by Claire Sibonney, writing by Cameron
French; editing by Peter Galloway)