Photograph by Andrew Tolson
The “history-making” stock exchange nuptials now under way have revealed once and for all how globalized capital markets have become. Just consider the United Nations of characters who masterminded the deals. Canada’s TMX Group, which is run by an American, announced plans last week to merge with the London Stock Exchange, of which a Frenchman is CEO. Shortly after that, the German Deutsche Börse AG, led by a Swiss executive, said it was in talks to buy New York’s NYSE Euronext, whose chairman hails from Holland. But all that intermingling in the boardrooms did little to prepare people for the idea that the Toronto Stock Exchange is about to become a whole lot less Canadian.
Since the deals became public, critics have worried about what they entail. A columnist in Montreal’s La Presse said the transaction with London marks “the beginning of the end for ultimate Canadian control” of the stock market. For some in the U.S., the overture from Germany for what the Wall Street Journal called the “citadel of American capitalism” stung particularly hard. Officially, the arrangement is a merger, but most see it as a takeover, and John Whitehead, a former co-chairman of Goldman Sachs Group, said the sale of the New York Stock Exchange is “an insult to all America,” while Jim Cramer, the host of Mad Money on CNBC, bemoaned, “Everything is for sale in this country.”
In presenting the offer from London, TMX Group CEO Thomas Kloet and LSE chief executive Xavier Rolet went to great lengths to present it as a “merger of equals.” But looking at the terms of the $3.2-billion all-share agreement, which would give the U.K. company control of 55 per cent of the combined business, Ontario Finance Minister Dwight Duncan said it doesn’t appear all that equal to him. Nor is he keen on the idea that Dubai, which currently owns nearly 21 per cent of the LSE, will have a major seat at the table. “I’m not sure I want them owning our stock exchange,” he told one newspaper. Duncan has the power to veto the deal, as does Quebec, since the TMX Group was formed after the 2008 merger of the TSX Group and the Montreal Exchange.
Looming in the background is the Harper government’s decision last fall to block Australia’s BHP Billiton from buying Potash Corp. amid a populist backlash. Potash was classified as a “strategic asset,” which raises the obvious question—if an abundantly available mineral buried beneath Saskatchewan is strategic, what does that make the country’s primary stock exchange?
Industry Minister Tony Clement, no doubt scanning his Twitter feed to gauge Canadians’ feelings on the matter, said Ottawa will review the merger. That didn’t come as a surprise, though. Under the Investment Canada Act, Ottawa must look at any foreign takeover deal valued at more than $299 million. The review will examine whether the deal will offer a “net benefit” to Canada, and the process could last at least as long as 10 weeks.
Clement has an incentive to drag this out as long as he can. Letting Washington weigh in first on the tie-up between Deutsche Börse and the NYSE would make his job much easier. If the German-U.S. deal gets the go-ahead, Clement can argue it would send a terrible message to foreign investors should Canada shut its doors to the British. On the other hand, if the U.S. government or regulators shoot down the Germans, Ottawa has cover to do the same. In other words, if you want to know how the TMX-LSE deal will play out, just watch Pennsylvania Avenue.
So far the proposed acquisition of the NYSE is more notable for what hasn’t been said, than what has. The response to the what many call a takeover bid has been akin to a loud yawn. Aside from a few outraged voices, there’s been nothing of the backlash one might have expected. Under the terms of the deal, which values NYSE Euronext at US$10 billion, Deutsche Börse, which has a market cap of around US$15 billion, will control 60 per cent of the seats on the combined company’s board of directors. The deal needs approval of regulators in both the U.S. and Europe, but experts don’t foresee any problems in Washington. In fact, the biggest concern lawmakers seem to have at this point is that the NYSE, otherwise known as the Big Board, should at least retain its name in the domestic market. At a news conference announcing the deal, NYSE Euronext chief executive Duncan Niederauer assured reporters he had no plans to start calling it “the Big Börse.”
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