February 11, 2011 / 9:08 PM / in 7 years

Analysis: Legal burdens weigh on LSE-TMX "London Bridge"

TORONTO, Feb 11, (Westlaw Business) - The blockbuster merger bridging the London and Toronto Stock Exchanges may have been announced, but this London bridge may yet fall under the sheer weight of staggering legal complexity.

A broad group, from AIM to Borse Dubai, and from the Montreal Exchange to Borsa Italiana, stand to be affected by issues surrounding the London Stock Exchange’s merger deal with Canadian exchange operator TMX Group.

And what a set of issues it is, ranging from post-Potash foreign investment concerns, to restrictive provincial securities laws, to undertakings regarding corporate governance. Even legacy contractual commitments from past acquisitions by the Toronto Stock Exchange (TSX) must be considered. Global markets affecting everything from equities to derivatives to venture funding await.

Of course, if it does stay standing, the London-Toronto structure, reported to be a $4 trillion transaction, would bridge not only the LSE and TSX, but also the venture-oriented AIM and TSX Venture Exchange, and significant foreign players including Borsa Italiana and Borse Dubai.

Together, the parties represent 20 trading markets/platforms across North America and Europe, with major positions in equities, derivatives, energy and fixed income. The list of markets within the group also includes the Montreal Exchange, and the Natural Gas Exchange.


Once united, the combined group would become the global leader in number of listings (over 6,700), with a dominant position in natural resources, mining, energy and clean technology.

Listed companies would include not only domestic Canadian and British businesses, but many others with origins around the world that have turned to these exchanges for their access to deep capital pools and their expertise in industries from commodities to shipping. The megalith would offer listing, trading and post-trade services, along with global information services and technology solutions.

Facing these complex issues and opportunities, it comes as little surprise that the parties turned to the A-list of advisers and law firms for help. London Stock Exchange Group (LSEG) is represented by Osler, Hoskin & Harcourt LLP and Freshfields Bruckhaus Deringer LLP, with Barclays Capital, Morgan Stanley & Co. Limited and RBC Capital Markets acting as financial advisers.

TMX Group has turned to Torys for legal advice, with Bank of America Merrill Lynch and BMO Capital Markets acting as financial advisers to the Canadian company.

The merger will be implemented by means of a plan of arrangement in Ontario, under which TMX shareholders will exchange one share of TMX for 2.9963 shares of LSEG, a British company that will continue as the holding company of the merged group. Following the transaction, LSEG shareholders will own 55 percent of the combined entity, and TMX shareholders will own 45 percent.

The parties have indicated the group will be “jointly headquartered” in London and Toronto, with LSEG being renamed after closing.

The various operating exchanges will continue under their existing names. The shares of LSEG will be listed on the London Stock Exchange, trading in pounds sterling, and will also be listed on Toronto Stock Exchange, trading in Canadian dollars. It’s somewhat ironic that, as in other M&A deals, the listings are identified as a condition of closing. It seems highly unlikely there would be an issue on that front.

Among the other conditions to the transaction are approval by LSEG and TMX shareholders (the latter by at least 66 2/3 percent of the votes cast at a special meeting), along with Ontario court approval of the Plan of Arrangement.

In addition, it is anticipated that approvals will be required under the Investment Canada Act and Competition Act (Canada), and the Hart-Scott-Rodino Antitrust Improvements Act. Securities regulators will also have a say in the transaction, with approvals required from the Ontario, Quebec, Alberta and B.C. Securities Commissions, along with the Britain’s Financial Services Authority (FSA).

As a result of the decision by Ottawa last year to block BHP Billiton’s proposed acquisition of Potash Corp. of Saskatchewan, the Investment Canada Act approval is likely to receive a lot of attention from investors and the media.

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