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TMX Deal Creates ‘Offensive Player’ for Takeovers, CEO Says

TMX Group CEO Thomas Kloet
Thomas Kloet, chief executive officer of TMX Group Inc. Photographer: Norm Betts/Bloomberg

The proposed merger of TMX Group Inc. and London Stock Exchange Group Plc will “get done,” creating an “offensive player” to pursue additional takeovers in the U.S. and other markets, said TMX Group Chief Executive Officer Thomas Kloet.

“It allows us to be an offensive player in the game, in a very important way, and gives Canada a chance to have a big seat at the table,” Kloet said in an interview today at Bloomberg’s Toronto office. “I very much like our position in the global space if we make this combination.”

The LSE agreed Feb. 9 to buy the Toronto Stock Exchange owner in a C$3.2 billion ($3.25 billion) stock deal, following a decade-long wave of mergers among exchange companies. Since then, Deutsche Boerse AG agreed to buy New York Stock Exchange parent NYSE Euronext in a $9.54 billion takeover to create the world’s biggest exchange operator.

TMX-LSE, as a larger, combined exchange owner, would be better placed to pursue acquisitions in the U.S. and around the world, Kloet, 52, said. The combined company would have C$1.6 billion in revenue and about 2,400 employees working in countries spanning three continents, he said.

Kloet declined to comment on a Globe and Mail report that the TMX had been in talks with Nasdaq OMX Group Inc. last year, before its agreement with the London Stock Exchange.

Get Deal Done

The TMX-LSE transaction requires approval from the federal government and five Canadian provincial regulators including Ontario and Quebec, as well as the U.S. Securities and Exchange Commission. The deal has about a 50-50 chance of gaining approval given the opposition from some lawmakers in Canada, said Thomas Caldwell, CEO of Caldwell Securities Ltd. and a TMX shareholder.

TMX rose 19 cents to C$41.20 at the 4 p.m. close of trading on the Toronto Stock Exchange, about 5 percent below LSE’s offer price of C$43.30 a share.

“I think we will get the deal done,” Kloet said earlier in a Bloomberg Television interview. “I understand there’s a political element to this, we always expected that, and we expect to see that through.”

Ontario Finance Minister Dwight Duncan, whose government has the right to block the deal, has called the Toronto exchange a “strategic asset” for the country and has questioned the impact of the takeover.

“They should quit calling it a merger. It’s not,” Duncan told reporters today, in comments broadcast by Business News Network television. “They should talk about the next step. If these two merge, is it their plan to do a further merger? I think that’s an important question.”

Committee Hearings

Ontario today formed a committee to consider the impact of the deal on the provincial economy, Toronto’s financial-services sector and northern Ontario’s mining industries. The committee, chaired by Deputy House Leader Gerry Phillips, will hold at least four public hearings in Toronto and release a report on April 7, according to the government website.

Canadian Industry Minister Tony Clement said Feb. 14 he will review the deal under the Investment Canada Act to determine if it’s beneficial to the country’s economy.

“We’re an important part of the capital markets in Canada, there’s no doubt about that,” Kloet said.

Kloet said there will be a “net benefit” to Canada, a federal government requirement for approving foreign takeovers. The combination will benefit issuers as well as investors.

Broadens Investors

“It broadens the number of investors by having us on the same technology, having us in the same company, and having a broader array of products will automatically put more eyeballs on Canada,” Kloet said. “Because of those two I think it’s good for Canadian companies.”

Kloet said he has trouble seeing how the deal would lead to job losses at banks, law firms and accountants in Toronto, Canada’s financial capital.

“I hear that comment about the large number of lawyers and accountants that are employed by the industry in Ontario,” Kloet said. “Our model respects the regulatory structure of capital markets here. Companies that want to list on the Toronto Stock Exchange are still going to have to go through the same process they do now.”

“I have every confidence that our lawyers and accountants are going to be every bit as competitive in that structure as they are in the existing structure,” he said.

Kloet said he doesn’t anticipate problems getting two-thirds approval from TMX shareholders when they vote on the transaction.

“For the most part our investors like the deal,” Kloet said. “I’m quite confident we’ll get to the two-third vote.”

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