London Stock Exchange Group (LSE) has agreed to buy Toronto Stock Exchange owner TMX Group for C$3.2 billion (R23.2bn) in stock as the companies cut costs to counter lost market share.
The 210-year-old bourse operator surged to a two-year high yesterday. LSE shareholders would own 55 percent of the company, while TMX investors would hold the rest, the exchanges said yesterday.
TMX shareholders will receive 2.9963 LSE shares for each share they own, valuing the Canadian company at about C$42.68 a share, 6 percent more than Tuesday’s closing price.
The LSE would reduce costs by £35 million (R407m) a year and expand into new businesses as competition from alternative trading platforms increased and rivals merged, said chief executive Xavier Rolet.
His predecessor Clara Furse fought off five takeover offers in two years and bought the operator of the Milan Stock Exchange.
The LSE’s share of UK equity trading was 63.8 percent last quarter, compared with 75 percent in 2009, company data show.
“This deal comes against the backdrop of consolidation in world exchanges and represents the first strategic move by Xavier Rolet,” Phil Dobbin, an analyst at Shore Capital Stockbrokers, wrote in a note to investors yesterday.
“The key benefit is the creation of a global exchange with a strong presence in natural resources and emerging markets.” He has a buy recommendation on the LSE.
Yesterday’s agreement comes four months after Singapore Exchange offered to buy ASX, the operator of Australia’s main bourse, for A$8.4 billion (R61.3bn) in a cash and shares deal that would create the world’s fifth-largest listed exchange company.
The LSE gained 9.5 percent to £9.77 by 10.35am in London as some investors speculated that the agreement might spur competitors to table rival bids.
“The market may potentially see this merger announcement as both LSE and the Toronto Stock Exchange putting themselves in play,” Citigroup analysts Nese Guner and Haley Tam wrote.
Rolet will become chief executive of the enlarged group. TMX chief executive Thomas Kloet will be president.
The bid may face opposition as the Canadian government is reviewing its foreign ownership rules after blocking BHP Billiton’s hostile takeover of Potash Corporation of Saskatchewan. Canadian law allows the government to reject foreign takeovers that do not provide a “net benefit” to the country.
The Ontario and Quebec securities regulators would have to approve any sale of more than 10 percent of the voting shares of TMX.
A sale to the London exchange would be the largest foreign takeover of a financial services company in Canada.
The federal government is reviewing the limits, which apply to industries including airlines, telecommunications and media firms. – Bloomberg