Queen's Park misses the mark on enforcement

TSX / LSE Merger Part 17

The media reports definitely got the highlights correct. The Ontario Select Committee on the propopsed TMX/LSE merger were big fans on ensuring that Canada be given an extra seat on the would-be LSE Group board of directors. Of all of the concerns folks have about the proposed deal, politicians seem incredibly focussed about the so-called “merger of equals” also involving 50/50 board representation. They also recommended that any promise of minimum representation not expire in four years, which is the current proposed deal between the LSE and TMX. Good idea.

The rest of the recommendations were largely Motherhood-type stuff.

One appears to have been directed at dealing with the basic concerns of many, including folks like us in the early-stage end of the market:

The Committee recommends that the Agreement contain an undertaking that the exchanges of the TMX Group continue to meet the needs of the Canadian capital markets, including access to capital, competitive fees, range of listings, trade execution, market data and index products, and the clearing and settlement of derivatives.

These are good ideas, as is the notion that the terms of the OSC’s approvals be included in the final agreement between the two parties. The problem with all of this, which I pointed out to the Committee when I appeared, is that there’s no hammer.

Even on March 2nd, you just knew the Committee would feel pressure to support the deal. That’s why I used the phrase “if you feel you must recommend the transaction” in my remarks, when setting up some ideas they could use to provide an enforcement mechanism of the various undertakings that they’d eventually come up with.

I don’t quibble with the actual recommendations, except for one thing. None of them are enforceable in practical terms. That’s why the “Golden Share” idea suited the situation perfectly; or so I thought. Unless Ontario retained a hammer, there is no way to enforce compliance with these various undertakings and promises over the years to come. It seemed to get the Committee’s attention at the time, garnering questions from both LIberal and NDP MPPs.

But it didn’t make it into the final report.

Ask Industry Minister Tony Clement what it’s like getting US Steel to live up to its Stelco takeover undertakings under the Investment Canada Act. If you don’t have a hammer, politicians wind up being the nail.

Ontario Finance Minister Dwight Duncan can still insert the Golden Share requirement into the deal, just as John McDermid did when the federal Tories privatized Petro Canada 20 years ago. But the Ontario Select Committee would have done everyone a favour by ensuring their useful post-merger recommendations were actually enforceable.

MRM