* Ontario panel won't back London's bid for TMX
* Panel's 9 recommendations aren't binding
* Several regulatory hurdles to come
(Recasts, adds analyst quote)
By Claire Sibonney and Julie Gordon
TORONTO, April 19 An Ontario committee on
Tuesday proposed tough terms that could force changes to the
London Stock Exchange's (LSE.L) $3 billion bid for TMX Group
(X.TO), and refused to say if it backed the deal.
The all-party legislative report included nine
recommendations -- centering on regulation, structure, jobs,
decision-making and the mining sector -- and a request that the
number of directors resident in Canada equal the number
As the deal is currently structured, seven of 15 directors
would be from Canada.
Legislators said they had no opinion on whether the deal to
create a $7 billion Transatlantic exchange should go through.
But the conditions that the Ontario panel wants to see could
hurt the acquisition's chances of success in its current form.
"I'm mixed. it doesn't look as good for the merger as I
thought it was going to look. I thought they were going to be
more positive on it," said Alison Crosthwait, director of
global trading strategy at Instinet.
"Originally, we thought they were going to support it with
The proposed takeover of TMX Group by the LSE would create
a transatlantic exchange and powerhouse in mining and resource
equity, doing $4 trillion in annual trading.
TMX Group owns the Toronto Stock Exchange, the TSX Venture
Exchange for small-cap companies and the Montreal Exchange,
Canada's main derivatives bourse.
> For other stories on the TMX/LSE takeover bid[ID:nN18253809]
> LSE/TMX deal faces many regulatory hurdles [ID:nN19280421]
The London offer is one of a number of proposed global
exchange tie-ups. Two bidders are courting the NYSE Euronext
NYX.N, while Australia last month rejected an offer for its
main exchange from Singapore.
Opponents of the Canadian deal, including some of Canada's
largest banks, have complained that the tie up would hand
control of Canadian capital markets to a holding company in
London, and that clearly found a resonance at the committee.
"Under the terms of the proposed merger, the center of
gravity in regards to the decision-making ability of Ontario
and Canada will move to London," said Gerry Phillips, chairman
of the select all-party committee of the Ontario legislature.
"This shift could result in decisions that do not reflect
the interest of Ontarians and Canadians as a whole."
The committee challenged the TMX and LSE to stick to the
language they used when proposing the deal on Feb. 9, and make
the tie-up a true "merger of equals".
The panel's recommendations are not legally binding, but
they paint a road map for regulators who will decide on the
deal in coming months at the provincial and federal levels.
The takeover requires the approval of the Ontario
Securities Commission and several other provincial regulators.
The federal government must decide if the takeover is of
"net benefit" to Canada under the Investment Canada Act, a test
that has seen just two deals vetoed since the law was enacted.
"It is our hope that the recommendations will be taken into
consideration by the proponents of this transaction before
seeking the necessary approvals and by regulatory bodies and
governments as they proceed with their review/approval
processes," the committee said.
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, in large part after
provincial Finance Minister Dwight Duncan expressed concerns
and described the TMX Group as a strategic asset.
The panel's report was not unanimous, with left-leaning New
Democrat Gilles Bisson, produced a minority statement opposing
the takeover proposal.
"We fundamentally see this as a takeover and we do not
believe it offers the right solution to creating a globally
sustainable Canadian based exchange," he wrote.
"As the saying goes, "why fix it if it ain't broke?"
(Reporting by Claire Sibonney and Julie Gordon; writing by Pav
Jordan; editing by Janet Guttsman)