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TORONTO (Reuters) - When Canada's big banks and pension funds needed sizzle to combat the steak offered by the London Stock Exchange's bid for the Toronto Stock Exchange, they looked only as far as the Canadian flag.
The iconic red maple leaf -- and sweet syrup from the trees -- conveyed in a word what the Maple Group consortium of big financial firms wanted to tell TMX shareholders: We don't want foreigners controlling our markets, do we?
Whether the appeal to nationalism worked or whether it was just a matter of money may be debated forever. But foes of the proposed tie-up of the LSE and TMX are already billing the death of the friendly transatlantic deal as a triumph of home-grown heroes.
"I think this is Canadians asserting themselves and, in fact, fulfilling the promise of free trade, that we will specialize in certain areas and lead in the world, which we are in financial services," Ontario's Finance Minister Dwight Duncan told reporters.
Duncan, whose Liberal party governs Ontario, Canada's most populous province and home to the Toronto Stock Exchange, has been one of the most vocal opponents of the LSE-TMX deal, citing the proven track record of Canadian banks during the financial crisis.
But economists and analysts worry that patriotism is trumping pragmatism, pointing to another big merger that was squashed last year on concerns about ceding control of Canadian assets: BHP Billiton's bid for Potash Corp.
"We've seen a great deal of nationalism lately, particularly with the Potash deal and the idea that mergers should act in the national interests," said Mike Moffatt, a lecturer at the Richard Ivey School of Business.
"That's going to raise concerns about investing in Canada ... Canada is now seen as riskier than it would otherwise be."
Robert Young, head of Liquidnet Canada noted that exchanges have sparked especially patriotic responses, including Australia's nixing of a Singapore offer for its main equities market.
"What we saw in Australia and what we saw here is ... that nationalism, in one way shape or another, frustrated those deals. We all know there is nationalistic, iconic status attached to exchanges," Young said.
"The perception is, 'Can you really do a deal in Canada?' And that's an unfortunate consequence of the banks deciding to call themselves Maple."
Whether the decision to spurn the LSE is part of a larger trend to bulwark Canadian companies against foreign control is debatable, BHP Billiton aside. In 2006, Brazilian miner Vale bought Inco, Canada's biggest nickel miner. A year later, aluminum producer Alcan was bought by Rio Tinto.
The difference lately may be the global financial crisis and subsequent meltdowns in economies in the United States and Europe. Canada looks robust by comparison.
"The decision not to pursue the merger I think is part of a general retreat from the 'globalization wave' of recent years," said Lakehead University professor Livio Di Matteo said.
"The recession and the sovereign debt crisis are sparking at least a pause if not a retreat from a more integrated world economy and this is its latest manifestation in Canada,"
Renee Colyer, chief executive of capital markets consulting firm Forefactor, said it's a grim development.
"What message did we just give the world?" Colyer asked.
"I just hope ... the Toronto Stock Exchange still has the opportunity for growth and opportunities to form alliances with other exchanges and that those other exchanges aren't going to feel like, 'Well, if we even try to come into Canada, we're going to be challenged by the banks that are the oligopoly that is Canada'."
Still, not everyone believes nationalism had anything to do with TMX shareholders balking at the LSE offer. Some 40 percent of TMX shares are held outside Canada, so many voters would not be swayed by a pitch to patriotism.
"The nationalistic angle might have been a convenient tool. But I really sincerely believe that, based upon the membership of this Maple Group, that these people formulated a bid based purely on economic considerations," said Louis Gagnon, a finance professor at Queen's School of Business.
"When it comes to money, people tend to see dollars before they see flags."
The failed LSE bid clocked in at C$49 a share, including a C$4 dividend. Maple's offer is worth C$50 a share.
Additional reporting by Solarina Ho, Claire Sibonney, Allison Martell and Jonathan Spicer; editing by Janet Guttsman and Rob Wilson