LSE to buy Toronto bourse making $4 trillion exchange

Wed Feb 9, 2011 7:28am EST
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By Luke Jeffs and Paul Hoskins

LONDON (Reuters) - The London Stock Exchange is to buy Canada's TMX to claw back lost market share and create the world's fourth-largest bourse trading $4.1 trillion of stock a year.

Shares in the LSE, first established in 1698, jumped 9 percent as markets welcomed the all-share deal, and indicating a per share valuation for TMX of C$46.7, up 16 percent.

The deal would create the No. 1 global center of mining and energy stock trading and values the Toronto group at about $3.2 billion.

If the combination survives likely political opposition in Canada, it will create a group with a market value of 4.3 billion pounds ($6.9 billion) based on Tuesday's prices with LSE shareholders holding 55 percent and TMX shareholders getting a 6 percent premium.

"The deal looks like a defensive looking merger of equals driven by competitive pressures ... and geographical constraints i.e. the need to attract more international business," said Oriel Securities in a research note.

With Xavier Rolet at the helm, the LSE is fighting to win back market share lost to upstart rivals after Europe opened markets in 2007 to challenge incumbent exchanges that had long been protected behind national boundaries.

The LSE's share of UK equity trading so far this month has been 54.9 percent, compared with 96.3 percent in February 2008, according to Thomson Reuters data, while new entrants like BATS and Chi-X are rapidly gaining clout.

The LSE expects cost savings of 35 million pounds per year from the deal and benefits to sales of the same magnitude in the third year though cross-selling, easier access for customers, and the wider availability of products.   Continued...