Is the LSE the only game in town?

TSX/LSE Merger Part 6

Singapore wants to acquire the Australian exchange. The NYSE is going ahead with its pairing to the German Bourse. The London Exchange is making modest progress in its attempt to merge with the “world-class” Toronto Stock Exchange, founded in 1852 (prior to Confederation).

Back office and information economies of scale. Better access to global investors. More efficient trading. The arguments are the same across the planet. The world is going global…and you don’t want to be left behind. Yadda yadda yadda.

Which begs the question: why not merge them all together? Seems as though the i-bankers aren’t thinking out of the box.

How can investors stand for the inefficiency that comes from having a London-based LSE/TMX Board of Directors, a NYSE/German entity with head offices in both New York & Frankfurt, plus the ungainly Aussie / Singapore model?

Think of the IMF or the World Bank. Every nation that contributes their exchange to the mix has a seat at the table. Make it a club that nations want to join. That requires, of course, some cogent arguments about why a global exchange makes sense — and I’m not making that case. But, if we aren’t going to actually merge the national exchange listings (see prior post “When is a merger not really a merger?” Feb 15-11), it has to make more sense than having a series of regional exchange HoldCos with all of the inefficiency that goes along with that model. Obviously, a six-way merger is a tall order; but it may be more credible — and palatable — than what is before us today.

For the TSX, and particularly B.C. and Alberta-based issuers, isn’t the Pacific Rim more relevant going forward than the U.K. and Italy? Is it possible that the Singapore Exchange is a better dance partner, given the prevelance of Asian investor interest in Canadian-based assets? And they aren’t shy with their shillings. According to Bloomberg, Singapore Exchange’s bid values ASX at 19.5x EBIT, almost twice as much as the 10.4x involved in LSE’s bid for TMX Group.

Mind you, one Australian lawmaker referred to the revised Singapore offer “like putting a pig in a dress” (hat tip Bloomberg), so perhaps that deal has a way to go. Or it could play perfectly into the hands of the TSX board.

Canada is still a proud member of the Commonwealth, and the links to London remain strong. But if a deal must be done, which is unclear — is this the only one to consider? As Dalton Camp would have said: the case has not yet been made.

MRM