A select committee from the Legislative Assembly of Ontario has expressed concern over the amount of control that the London Stock Exchange Group (LSEG) could have on the Canadian market if its merger with TMX Group is approved.
“Fundamentally, the merged entity will move decision making from Toronto to London,” read the report. “Through this substantive change, Canada will become just one jurisdiction of three, along with the United Kingdom and Italy and, as more mergers take place, Canada stands to see its influence diminish even further.”
Canadian exchange operator TMX Group and LSEG agreed a merger on 9 February in what was described as an “all-share merger of equals”. Under the terms of the deal, which would value the combined company at £4.3 billion (US$7.03 billion), LSEG shareholders will own 55% and TMX shareholders will own 45% of the holding company of the merged group.
The select committee, chaired by Canadian MP Gerry Phillips, recommended that the number of Canadian directors on the board of the combined LSEG-TMX should be equal to the number of Italian/UK board representatives. The current deal stipulates that the LSEG will nominate eight board members while TMX would nominate seven.
The report also made a series of recommendations relating to the role of Canadian regulator the Ontario Securities Commission, proposing that it should have a say in any future mergers, and continues to oversee trading and fundamental business operations of the TMX Group. It added that the merger agreement should include provisions that will meet the needs of Canada's capital markets, such as access to capital, competitive fees, trade execution, market data and index products, and the clearing and settlement of derivatives.
One of the main benefits detailed by the merger agreement was the dominance the combined entity would have listings for natural resources, mining, energy and clean technology companies. To preserve the role of the TMX Group as a leading listings venue for mining companies, the select committee stressed that regulatory standards should not be relaxed in anyway and improvements to services offered to the mining sector should be ongoing.
According to Renée Colyer, CEO of market research and consultancy firm Forefactor, those considering whether to approve the merger should not overlook the commercial aspect of the deal.
“The Canadian government needs to allow companies to operate autonomously and by default, stay out of the details of transactions that have already been deemed a good thing by a company's board and/or shareholders,” she said. “The TMX Group is no longer a not-for-profit entity and as such it needs to operate in the best interests of its shareholders, which is exactly what it is doing with this merger.”
Acknowledging the work of the select committee, the LSEG said in a statement: “We will review the report in detail and look forward to continued open dialogue with all stakeholders as we work towards obtaining the required regulatory and shareholder approvals to complete our transaction. The two companies believe the opportunity to create an international exchange leader is significant; our customers, our shareholders and the markets we serve will directly benefit from this strong partnership.”
The select committee does not have the power to enforce its views on the merger, but within the report said it hopes that “that the recommendations will be taken into consideration by the proponents of this transaction before seeking the necessary approvals”.