On February 9, the London Stock Exchange Group and TMX Group announced plans to merge, with LSEG shareholders set to own 55% of the combined entity. The merger will be subject to customary reviews and approvals,including a 45-day review (with a 30-day extension option) by the Canadian government to determine the "net benefit to Canada." As the market is currently giving the deal only a 60% chance of being consummated, we are not the only party questioning its feasibility. In an attempt to handicap the review process, we discuss below the six factors under Section 20 of the Investment Canada Act that will be considered by Industry Minister Tony Clement:
20(a) The effect of the investment on the level and nature of economic activity in Canada, including, without limiting the generality of the foregoing, the effect on employment, on resource processing, on the utilization of parts, components and services produced in Canada and on exports from Canada.
TMX Group CEO Tom Kloet has stated that the proposed merger will provide “the ability for us to reach investors around the world through a larger, stronger group, to present our capital markets via that larger group with touch points in a broader array is good for the capital markets of Canada, it’s good for investors that want to invest here, and it makes it more seamless.” While the globalization of the capital formation process is clearly well underway, it is also true that many investors continue to have local biases. That being the case, we see the ability for a combined TMX/LSE to promote Canadian issuers to European investors as a benefit to the Canadian economy, albeit one that will likely take years rather than months to realize.
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