This week is supposed to be crunch time in Canada as investors in the TMX Group vote either to throw their lot in with the London Stock Exchange or retrench within their national borders and develop as the Maple Group. An article in the Financial Times today questioned whether either deal was actually a good one. On the one hand the Maple Group deal looks challenging as the new entity would end up with very high levels of debt and so could be restricted in its strategic options moving forward. On the other hand, the rhetoric coming out of Paternoster Square doesn’t seem to focus on real cost or clearing synergies but, instead, highlights the benefits of becoming a listing powerhouse for mining and natural resource stocks. Put like that you can see why maybe neither offer is enough to set the pulse racing but is the “do nothing” option a realistic one and will a better deal come along for either party in the foreseeable future?
Both the LSE and the Toronto Stock Exchange (TSX) have seen their domestic market share suffer and both are in that awkward middle ground of being neither niche nor a real super power. This is made worse by the fact that exchanges simply cannot hold back the globalisation of capital markets and exist within a vacuum. On these grounds alone the Maple Group bid looks to be on shaky ground especially as, post-deal, it would lack the financial firepower to be a real consolidator outside of Canada.
So, should TMX consummate its relationship with London or sit back and see if a better deal comes along? The LSE has come a long way since it woke up and met the challenges of the post-MiFID landscape. Right now, its blue chip equities volume is about five times that of the TSX and the combined group would certainly have the volume, prestige and financial power to become a real global player.
Nevertheless, it looks like it will still go to the wire but the clincher for me is that if the Maple Group option is such a good thing how come it took a bid from the LSE to bring it out into the open?