TSX's PR recovery underway
TSX/LSE Merger Part 8
News item: TMX mulled Nasdaq deal before focusing on LSE
You’ve got to credit the TSX management team: they quickly came to understand that they’d lost the opening round of the LSE/TSX public relations battle and have swung into action. The PR moves are all still reactive, but that’s not to take away from what had to be done to give their deal a fighting chance.
PR Challenge #1: How is it supposed to work?
This issue was simply addressed last week when the TSX stated that “nothing will change“. If you are currently listed on the TSXV or the TSX, nothing will change. You’ll still trade where and when you do, and be regulated by the same folks that you are today. Of course, no one can put that in writing, inasmuch as the LSE/TSX board may well decide to merge the AIM and TSXV three or four years from now. They’ll be under pressure to increase earnings by then (just as they are now), and there will be no low hanging synergy fruit left over from the IT and trading platforms. But, as of today, there are no plans to have plans, which is supposed to be a comfort to the Canadian small cap world.
It is definitely sincere, but there are no guarantees.
PR Challenge #2: Is this really a merger of equals?
Both Ontario Finance Minister Dwight Duncan and PC Leader Tim Hudak focussed on this point, and for understandable reasons. In the accounting world, a “merger of equals” can be called such so long as the junior partner receives at least 45% of the equity of NewCo. That’s exactly the boat BMO was in when the 1999 merger with RBC was floated, and it ties into the days when Pooling Accounting was relevant in M&A deals.
Politicians naturally think of “equals” as being, well, equal. Like in the Legislature. If one party has 55 seats, and the other has 45, guess who is the Majority Government? The gal/guy with 55 seats. The folks with 45 are without the levers of power; chilly on the outside while those with 55 enjoy the spoils.
All the TSX has been able to do on this point is say: hey, it could be a lot worse! If we did a deal with NYSE, we’d have no power at all. If we turn down the LSE proposal, with a party that actually wants to merge with us, Canada’s capital markets will fall into the category of irrelevancy. That’s the Bogeyman argument.
Since you can’t prove they are wrong, as with all Bogeymen, this argument has legs.
PR Challenge #3: Is this the best deal?
If a deal has to be done, is this the best one for Canada? Folks such as Minister Duncan and I posed this question (see prior post ”
Is the LSE the only game in town?” Feb 16-11). Since 40% of daily trading on Canadian institutional desks already comes from U.S. money managers, isn’t a U.S. partner worth a look?
This question was adroitly dealt with as a result of some good primary research by the Globe and Mail’s Boyd Erman last Friday, who was advised that the TSX had been in talks with NASDAQ last year. But, NASDAQ wanted too much control, the story goes, so the TSX turned it down (the Globe’s editorial board is onside with the proposed deal).
The story went on to make the point that the NASDAQ is now chasing EuroNext, so there’s no chance of turing back the clock in any event.
This was a brilliant PR move, since it had the added benefit of addressing PR Challenge #1 above, while buttressing the TSX Board’s “We Fought For Canada” credentials with Industry Minister Tony Clement. Although Minister Clement has stated publicly that he doesn’t listen to the buzz around any deal involving the Investment Canada Act, he, like Judges, still reads the newspaper.
Some of us would ask the question: is it about initial “sharing of control”, or what’s ultimately best for the Canadian capital markets? Are the two the same? I think they aren’t to be confused, since a combined LSE/TSX will invariably find itself someone else’s merger partner within 5 years. The pressure of alternative trading platforms won’t go away if this deal proceeds.
Whatever notional corporate governance sharing is arranged today will simply be ondone in the not-too-distant future. Making the idea of a Golden Share all the more relevant to the Ontario Government (see prior post “When is a merger not really a merger?” Feb 15-11).
If the NASDAQ is the natural second home for every successful Canadian tech and biotech company, for example — and the ultimate goal of the rest — would a NASDAQ/TSX deal not truly improve the access to capital, versus the woolly nature of argument involving the LSE?
PR Challenge #4: Bay Street was strangely quiet
This may have surprised a few folks at the outset, as there was a paucity of supportive noises coming from the centre of Canada’s financial market immediately following the news of the deal. Minister Duncan initially leapt on the fact that he was surprised to hear, albeit privately, concerns from people he’d assumed would be in favour of the proposed merger.
After 10 days of stewing, and undoubtedly with some prompting, a few Big Cap CEOs came out in support when the Globe did a survery of the S&P/TSX 60 on the topic. Not that the S&P/TSX 60 represents anything more than 1.4% of the exchange’s listing, and even then, a majority of the Big Cap CEOs surveyed by the Globe wouldn’t go on the record either way.
RBC CEO Gord Nixon said he was a fan, but acknowledged his firm had a dog in the fight (RBC Capital Markets is advising LSE on the deal), for example, and
Even those that are in favour, such as ARC Resources CEO John Dielwart (#51 in the TSX 60 index), didn’t think there would be a material improvement in the access to foreign capital. And he has a $7.5B market cap:
[I] don’t really expect the merger to have any real affect on business. [It] may facilitate increased investment from Europe but certainly not material.
Doesn’t that just say it all. Even the deal’s fans don’t yet buy the TSX’s arguments about the positives of the deal. Which can only mean one thing. The PR battle isn’t over yet.
MRM
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