The London Stock Exchange Group (LSEG) has announced that it is to merge with TMX Group, the holding company for the Toronto Stock Exchange, in an “all-share merger of equals”, according to a joint statement issued today.
The deal, which is being unanimously recommended by the boards of both groups, will create a new group to be jointly headquartered in London and Toronto and headed by LSEG's CEO, Xavier Rolet.
Under the terms of the deal, TMX shareholders will receive 2.9963 LSEG ordinary shares for each TMX share. LSEG shareholders will own 55% and TMX shareholders will own 45% of the enlarged share capital of LSEG, the holding company of the merged group, which will be renamed once the deal is complete. The deal, subject to regulatory approval in Canada and the UK, values the combined firm at around £4.3 billion.
For the 12 months to 30 September 2010, LSEG reported revenues of £633 million (C$1,027 million), while for the 12 months ended 31 December 2010, TMX reported adjusted revenues of £394 million (C$626 million).
The announcement said the merged organisation would “offer an international gateway, leading global pools of capital formation and liquidity together with a unique portfolio of highly complementary markets, products, technologies and services”.
The merged entity will encompass 20 trading platforms across North America and Europe, across a range of asset classes including cash equities, derivatives, fixed income and energy. A joint statement said the LSEG-TMX Group had the potential “to develop new trading products and opportunities, supported by strong regional post-trade operations and information services”.
The combined LSEG-TMX group is targeting revenue benefits of £35 million (C$56 million) in the third year following the merger, rising to £100 million (C$160 million) annual run-rate revenue benefits by year five. These revenue benefits are expected to be generated from facilitation of cross-listings and admissions for customers, wider availability of products and services and the development of new products. The merged entity is also predicting annual run-rate cost synergies of £35 million (C$56 million) by the end of its second year.
Rolet said the merger aimed to create “a true powerhouse” in the global exchange business. “This is an incredibly exciting merger with considerable growth opportunities. This new international leader, marrying the right cost structure, financial strength, technological expertise and product portfolio, will be strongly positioned to capitalise on growth opportunities in emerging markets and deliver them to our customers in North America, Europe and beyond,” he said. “Together, we will also be uniquely positioned to offer high-performance, low-cost technology solutions to our exchange clients around the world.”
The merger announcement emphasised the ability of the merged entity to become a leading global listings franchise based upon a flexible and deep pool of international capital and investment expertise, that would provide international investors with access to businesses ranging from venture-funded companies, through small and medium enterprises to large global corporations. The merger would create a listing venue totaling 6,700 companies with an aggregate market capitalisation of approximately £3.7 trillion (C$5.8 trillion). In addition, the combined LSEG-TMX would become the leading global listings venue in the world for natural resources, mining, energy and clean technology companies.
The London Stock Exchange merged with Borsa Italiana in 2007 to create the London Stock Exchange Group. At the beginning of 2010, LSEG took a majority stake in Turquoise, the multilateral trading facility initially established by brokers in opposition to the LSE's UK equities platform. In September 2009, the firm acquired Millennium IT, a Sri Lankan-based technology vendor, to boost its in-house technology capabilities. The LSE's main market is scheduled to migrate its trading platform to Millennium Exchange on 14 February. In addition to its London and Milan equity trading franchises, LSEG operates fixed income and derivatives platforms in Italy and a derivatives trading business from London. The LSE has also announced its intention to trade equity derivatives on Turquoise from Q2 2011.
TMX, which also owns the Montreal Exchange, a derivatives trading venue, was previously a minority partner in the LSE's derivatives platform, EDX London. In addition, TMX Group owns TSX Venture Exchange, Natural Gas Exchange, Boston Options Exchange, inter-dealer broker Shorcan and investor relations firm Equicom.
The board of the merged group will consist of fifteen directors, eight nominated by LSEG (including three from Borsa Italiana) and seven from TMX. TMX chairman Wayne Fox will be the non-executive chairman of the merged group's board, with Chris Gibson-Smith and Paolo Scaroni serving as deputy chairmen. Gibson-Smith will remain chairman of London Stock Exchange plc.
In addition to Rolet, the executive board members of LSEG-TMX will include TMX CEO Thomas Kloet as president, TMX's Michael Ptasznik as chief financial officer and Raffaele Jerusalmi, CEO of Borsa Italiana, who will serve as director.
According to the statement, LSEG-TMX will recognise existing domain strengths by assigning overall responsibility to the merged entity's global leadership in Toronto for primary markets, Montreal for derivatives and Calgary for energy, while London will be the key centre for international listings with global responsibility for technology solutions, information services and post-trade services. Milan will be the group's centre for fixed income and equities trading, and European post-trade.
“Canadian customers will benefit from access to one of the world’s deepest capital pools while European issuers will have an effective gateway to North American financial markets,” said Kloet. “With some of the most valuable and respected brands in the exchange world, this merger will open new growth opportunities for each of our businesses and all of our stakeholders. This merger brings together talented market professionals across a wide geography, positioning the group for continued leadership in financial markets.”