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This is, as it is often said, Canada’s moment. Relatively unharmed by recession, with the soundest public finances and strongest banking system in the developed world, we have a historic opportunity to discard once and for all our self-image as a small country, and join the front ranks of global economic powers.
And yet, we’re in danger of blowing it. With the world at our feet, at the very instant we should be pressing our advantage, we seem instead to have decided to turn inward. Those old Canadian devils—fear of foreigners, a vacuum of national leadership, petty provincialism—are conspiring to rob us of our place in the sun.
All three were very much in display in the Potash fiasco, in which the premier of a province with three per cent of the country’s population was able to bend the government of Canada this way and that like a voodoo doll, merely by uttering the incantation “strategic asset”—as if a resource buried thousands of feet below the ground could be made to disappear at the stroke of a pen. Or as if a majority foreign-owned company headquartered in Chicago was somehow a jewel of national pride and identity.
Well, that was just a warm-up. With the proposed merger of TMX Group, the company that owns the nation’s major stock and derivative exchanges, and the London Stock Exchange, a.k.a. LSE Group, we are in for an extended tour through our worst national neuroses, with no more guarantee of a successful outcome in the end. Barely had the deal been announced, in fact, before the finance minister of Ontario, Dwight Duncan, was unburdening himself of his misgivings at the largest shareholder in the merged entity being from—gasp—Dubai. “We do business with the Middle East,” he said. “I am just not sure I want them owning our stock exchange.” Them. You know, “the Middle East.” So we’re off to a classy start.
Yet, if anything, the case for the TMX-LSE merger is the more compelling. Potash Corp dominates its market, and would with or without BHP Billiton’s sponsorship; the Toronto Stock Exchange, by contrast, is but a bit player worldwide, and rapidly losing market share at home to new electronic exchanges like Alpha Trading Systems—as, for its part, is the LSE. The merger is in this case a friendly one, where the whole really is greater than the sum of its parts. It isn’t just the economies of scale thus derived, though that is an important consideration in a high-volume, highly liquid business where the competitive edge can be measured in the hundredths of a cent. Rather, it is the opportunity to dominate trading worldwide in the mining and resource sectors—areas of strength for each exchange on its own, but of overwhelming advantage combined.
That, at least, would have to be the calculation of the owners of each company: the only “net benefit” test that has any substantive basis to it. That is, unless they believe the returns on the merged company will exceed those they would obtain from their current shareholdings, they would not approve the deal, never mind what any regulator has to say about it. So the readiness of those who do not own the company to override the wishes of those who do is, far from a defence of Canadian ownership, the negation of it.
But then, ownership is only one way in which a company is controlled, and far from the most significant. Whether you regard this as a merger of equals or a foreign takeover, the Toronto (senior equity), Montreal (derivatives) and Calgary (venture capital) exchanges are not going anywhere, and would remain under Canadian regulatory authority. And, as before, they would live or die by whether they served the needs of their customers, the companies that list their shares on them and the traders who buy and sell them.
Indeed, even by the usual criteria of economic nationalists, it’s hard to see the loss of sovereignty in this agreement. Though the LSE’s shareholders would get a 55 per cent stake in the new company, the largest block of its directors would be Canadian—seven, to five from the U.K. and three from Italy—as would its chairman, president and chief financial officer (though not its chief executive). Toronto would be the global headquarters for the stock markets’ business unit; Montreal would play the same role for derivatives, as Calgary would for energy.
And that is where the deal may run into trouble: not so much by the intervention of the federal government, as through the greed and rivalry of the provinces, who must also sign on to any deal. Ontario’s opposition seems motivated more by a concern that it would not get its fair share of the goodies the TMX-LSE management seem prepared to spread about the country than by any genuine fear of seeing jobs or clout move overseas—though, as we have seen, it will not hesitate to play the nationalist card if it needs to. Remember how hard it was to get the government of Quebec to agree to the merger of the Toronto and Montreal exchanges? That may be Ontario’s template.
In a way, that lets the feds off the hook: whatever the provinces decide amongst themselves, they will probably go along with. But what if the provinces can’t agree? What if Quebec, Alberta, and B.C. are onside, but Ontario is not? With a federal election looming, and Tory hopes fixed on Ontario, the national interest may once again take a backseat to the provincial.
