TMX-LSE marriage counsel could face hurdles

When the top executives of the London Stock Exchange Group plc. and TMX Group Inc. announced the deal that would see the two companies merge to create one of the world’s largest stock exchanges, it immediately incited debate about the business benefits and regulatory hurdles the deal faces.
But beyond that debate, the deal — a transaction valued at $6.9 billion — is going to give a big boost to Canadian legal business.

Spokespeople at the two major Canadian firms that have been retained in the deal, Torys LLP and Osler Hoskin Harcourt LLP, are not giving a lot of details on the firms’ involvement, but they did confirm to Canadian Lawyer InHouse they have teams of lawyers already working with the two companies to get the deal done.

Torys is representing TMX with a 14-member team that includes seven M&A lawyers, three investment and antitrust lawyers, two tax practitioners, and two others assisting in the merger plan. Osler says it has five lawyers working for the LSE side of the deal.

News of the merger is part of a larger increasing trend in Canada’s M&A activity, which went up 19 per cent by deal count and 6.8 per cent in terms of total deal value, compared to 2009, according to a recent report by the Mergermarket Group.

The TMX-LSE deal, which is being described as “a merger of equals” by the two companies has wider implications than its price tag because of the nature of the stock exchange business. And that’s visible in the resource sector more than anywhere else since Toronto is a trading hub for mining and energy companies, which London sees as a major attraction.

A securities lawyer who specializes in financing Canadian resource companies says the deal would bring increased exposure and liquidity for Canadian issuers.

If a workable process of cross-listing can be achieved, it may provide many Canadian-listed issuers access to significant pools of investment capital from institutional funds and retail investors throughout Europe and the world, allowing Canadian companies to list in Toronto and trade in London, says the lawyer, who did not want to be identified, because he didn’t have permission from the firm to speak to the media about this transaction.

“Assuming the listing requirements for issuers do not materially change, this could be a significant plus for Canadian companies seeking capital from around the world,” he adds.

That global nature of the deal is a main benefit, points out Wayne Fox, current chairman of TMX Group and future head of the joint company. When the deal was announced in Toronto, he said joining forces would create a more diversified and international company.

“This merger of equals will benefit shareholders, issuers, customers, employees, and other stakeholders of both organizations. As important, it will have a positive impact on the business communities in Canada, the U.K., and Italy,” says Fox.

The Italian connection is due to the fact the LSE has recently purchased that country’s main stock exchange, Borsa Italiana. As a result, the merged company would actually see the Canadians in majority with seven board members from TMX, five from London, and three from Italy.

But in terms of shares, LSE has an advantage. TMX shareholders get 45 per cent of the joint company, while LSE will get 55 per cent.

For now, the deal is headed toward regulatory and political hurdles that could kindle the same Canadian sensitivities that killed the Potash Corp. of Saskatchewan Inc. bid. Federal Industry Minister Tony Clement says he will decide as fast as he can whether the deal needs to go through the Investment Canada Act “net benefit” filter.

“I and my officials will look at how the Investment Canada Act applies,” Clement said when the news of the merger was released.

Then there is the issue of two provinces — Quebec and Ontario — and their respective regulators that could potentially block the deal, which touches on another major story in Canada — the national securities regulator.

Regulators in both provinces have a say because TMX is a product of Toronto’s stock exchange buying its Montreal counterpart.

Ontario has already expressed concerns about the deal. Finance Minister Dwight Duncan says the provincial government needs to understand the impact on Ontario and the Ontario markets.

“Above all else, our job is to protect Ontario’s and Canada’s interests,” he says. “A process needs to exist for Ontarians to have a say and the Ontario Securities Commission will fulfil that need.”

List of Canadian lawyers involved in the TMX-LSE deal:

Torys LLP (TMX)

Mergers and acquisitions: Richard Balfour, Sharon Geraghty, Aaron Emes, James Miller, Catherine De Giusti, Morgan Crockett, and Robbie Leibel
Regulatory: Omar Wakil, Sue-Anne Fox, and Craig Pell
Tax: James Welkoff and Kathy Moore
Planning: James C. Tory and Linda Plumpton

Osler Hoskin & Harcourt LLP (LSE)

Corporate: Clay Horner, Jeremy Fraiberg, and Don Gilchrist
Competition: Peter Franklyn
Tax: Monica Biringer

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