TORONTO/OTTAWA The authors of a plan to combine the London and Toronto stock exchanges insisted on Thursday that the deal was fair, as regulators prepared to review if the proposal is in the public's best interest.
Canada's top securities regulator said the continued strength of Canadian equity markets will be crucial as it mulls whether to support the London Stock Exchange's C$3.1 billion bid for TMX Group, parent company of the Toronto Stock Exchange.
Approval from the Ontario Securities Commission is one of a series of green lights needed for the deal to fly. Other provinces will also have a say, and federal officials must rule if the proposal is of "net benefit" to Canada.
"I would like to emphasize that the OSC's role is not to approve or reject the proposed transaction," commission Chair, Howard Wetston, told an Ontario legislative committee that is examining the transaction.
After the session, he told reporters, "If we're dissatisfied that the transaction in some way or another doesn't meet our requirements, then the parties are going to have to think about what they may need to do to address them."
But the architects of the proposal told reporters in Ottawa that they had no plans for changes.
"We took a lot of time, a lot of care, a lot of effort in putting it together ... We think it is absolutely the right deal for both organizations and this is the deal we are now taking to the marketplace," said David Lester, director of information services at the LSE.
"We're listening ... and taking on board the feedback and seeing whether we've missed anything... But as I say, the deal we really did craft very thoroughly, in between two boards over a number of months, and we believe it is the right deal."
Wetston said the OSC was well aware of increasing competitive pressures, as well as the wave of consolidation sweeping global exchanges. It can accept the transaction as it stands, or make clear what changes are needed to reach a deal that it finds palatable.
The Singapore Exchange and Australian bourse operator ASX, who have been trying to complete a $7.9 billion tie-up, renegotiated their deal last month to give Australia a larger presence on the combined company's board.
And Germany's Deutsche Boerse has bid for the New York Stock Exchange parent NYSE Euronext.
Shares of TMX have traded below the offer value since the start and the stock sank further on Thursday as opposition to the transaction gained traction.
Critics include some of Canada's largest banks, who made their views public on Wednesday.
Ontario, home to the Toronto exchange, formed a legislative committee to review the deal soon after the takeover was proposed last month and after criticism mounted, led by Ontario Finance Minister Dwight Duncan.
Pundits mostly expect the transaction will not go through in its present form, saying a precedent was set when federal Industry Minister Tony Clement blocked BHP Billiton's takeover of Potash Corp last year.
Half of Canada's big banks oppose the deal as it stands. They told Ontario lawmakers that it will hurt Toronto's status as a global financial center and make it harder for Canadian companies looking to raise capital on public markets.
Wetston said the banks would have to talk to the commission directly if they want the OSC to listen to their concerns.
He said the regulator -- the largest of 13 provincial and territorial entities that regulate Canadian markets -- will invite public comment as it conducts its review.
If the deal goes ahead, the OSC would have to approve changes to the TMX rules, including one to allow a single shareholder to own more than 10 percent of the exchange.
Wetston also said the OSC would need to determine conditions for regulatory oversight of a merged LSE/TMX, and will discuss this with the UK Financial Services Authority.
Michael Ptasznik, TMX's chief financial officer, said the two exchanges were "working co-operatively" with Industry Canada officials to draw up a timetable that would ensure both Ontario and the province of Quebec could offer feedback.
He said the LSE and TMX hope to close the deal at some stage in the third quarter of this year.
(Additional reporting by Claire Sibonney and Cameron French; editing by Janet Guttsman)