Ontario hearings to highlight politics of TMX deal

Tue Mar 1, 2011 1:39pm EST
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By Pav Jordan and Solarina Ho

TORONTO (Reuters) - Politics may trump the idea of globalization in deciding the fate of a proposed takeover of the TMX Group, raising the specter of a second foreign-backed deal blocked by Canada in a matter of months.

A complex, multi-tiered approval process starts on Wednesday when an all-party committee of the Ontario provincial legislature holds the first of four hearings on the takeover proposal from the London Stock Exchange.

Judging by strong criticism from the Ontario finance minister and from opposition politicians, the deal faces a rough ride in the hearing room.

The panel's report is non-binding, but it will likely carry weight when the Ontario Securities Commission opens its own independent review of the deal. The OSC can veto the transaction if it deems it to be outside "the public interest," a concept that is open to interpretation.

"It is a problem that it's vague because we don't know what they are looking at," said Alison Crosthwait, a global trading strategy analyst at Instinet who does not expect the deal to be approved as it currently stands.

Even if the deal gets past the OSC, it will have to pass muster with the federal government in a review that will only start when Industry Minister Tony Clement receives an application from the exchange.

Only four months ago Ottawa blocked BHP Billiton's $39 billion takeover of Potash Corp, saying the Anglo-Australian miner's stewardship of the world's largest fertilizer maker would not benefit Canada.

Investors appear pessimistic about the fate of the LSE-TMX deal. Shares of TMX, the parent of the Toronto Stock Exchange, have traded below the price implied by the proposal since it was announced in early February, suggesting investors aren't convinced it will survive the gauntlet of reviews.   Continued...