Canada To Review TSX And LSE Merger

by Glen Shapiro, LawAndTax-News.com, New York

17 February 2011

Canada's Industry Minister has announced an impending "thorough" review of the proposed TMX-LSE merger. Tony Clement told MPs on Monday February 14 that "it is important to have an in-depth review because it is a very complex transaction".

Clement's Ministry of Industry will be responsible for the review, which is expected to begin once the merger application has been formally submitted, in an estimated two weeks' time. Following this, the Ministry will have 45 days to complete the review, with an optional extension period of 30 days.

According to the Investment Canada Act a substantial corporate takeover cannot be approved by the government unless it is deemed to be of "net benefit" to the nation. The review, therefore, will be the vehicle with which the government aims to establish whether the merger would be of benefit to, and in the public interest of, Canada. Clement has said that the review will look, among others, at the deal's implications for jobs, innovation and competition.

The federal government came under immediate pressure from concerned and very vocal provincial authorities following the initial merger announcement. Ontario and Quebec have both called for public hearings on the issue and Quebec has requested its securities regulator hold its own hearing. Ontario's securities legislation permits the province to act if there are "extraordinary circumstances requiring immediate action to be taken in the public interest". Ontario's finance minister Dwight Duncan released a statement on 9 February hinting at this stipulation, arguing that "a process needs to exist for Ontarians to have a say and the Ontario Securities Commission will fulfill that need." Both Ontario's and Quebec's provincial regulators are required to approve substantial alterations in the ownership of the TMX Group. Clement pledged that the federal ministry would "be having consultations with the appropriate representatives of the provinces," but did not say whether the provinces would have a veto or if he would have the ability to override any such veto.

The hearing's announcement comes three days after Duncan voiced strong concerns on Friday about the nature of the arrangement. He deemed the stock exchange to be a "strategic asset" to the country and stressed that "we have to take into account not just the shareholders of the TSX and the LSE, but we have to take into account the shareholders of Canada". Clement responded to the debate over the term in his speech, stating that the term "strategic asset" did "not appear in the Canada Investment Act" and that, because of this fact, he would "never use the term".

The announcement has been greeted with fresh media speculation in the Middle East that Borse Dubai is contemplating reducing its stake in the LSE in response to the Canadian criticism. Duncan's comments on Friday extended to expressing concern about the level of ownership Borse Dubai would possess as a result of the merger. Despite speaking favourably of the business Ontario currently does with Middle Eastern companies, Duncan was keen to stress that he was "just not sure I want them owning our stock exchange". The company currently holds a 20.6% stake in the LSE, which would be diluted to 11.3% following implementation of the deal. However, this would continue to exceed a 10% ownership threshold set by the Canadian government, any ownership above which automatically requires the approval of state and federal regulatory authorities. IT has been suggested that the firm would consider reducing its stake to below 10% in order to ease the transaction.

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