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Canadian Exchanges Plan to Merge

Date: Monday, December 10, 2007
Author: Ian Austen, New York Times

OTTAWA, Dec. 10 — After several false starts, the Toronto Stock Exchange and the Montreal Exchange announced a merger today valued at 1.31 billion Canadian dollars.

There had been pressure on the exchanges to come together as a way of avoiding a foreign takeover of the country’s financial markets. Making the call most recently was the federal finance minister, Jim Flaherty.

But the end of the Montreal Exchange’s autonomy has always been a politically sensitive issue within its home province of Quebec, which had a hand in thwarting earlier efforts at mergers.

The combined exchange, to be known as the TMX Group, will be based in Toronto. Montreal, however, will continue to handle trading in derivatives and new products like carbon emissions trading. It abandoned stock trading in 1999.

The Toronto exchange has recently been the target of new competitors. Foreign takeovers of Canadian industrial giants like Inco, the nickel miner, have also removed billions of dollars from Toronto’s electronic trading floor. At the same time, several would-be suitors from outside the country were thought to have been preparing bids for the Montreal Exchange.

“The new group will redefine the Canadian capital markets and strengthen its global positioning,” Luc Bertrand, the president and chief executive of the Montreal Exchange, said in a statement. Under the terms of the deal, Montreal Exchange shareholders will receive half a common share in the Toronto Exchange plus 13.95 Canadian dollars in cash, worth roughly the same amount in United States dollars, for a total value of 42.56 Canadian dollars a share, based on Friday’s closing price.

To appease concerns in Quebec, the agreement requires that 25 percent of the new company’s board members come from that province. Richard Nesbitt, the chief executive of the Toronto exchange’s holding company, the TSX Group, will continue in that role with Mr. Bertrand as his deputy. Mr. Bertrand will also continue as president of the operations in Montreal.

Historically, the Montreal exchange was Canada’s pre-eminent equity market with listings that included most of the country’s largest corporations like the Canadian Pacific Railway. Toronto, by contrast, specialized in mining issues, many of them highly speculative, during its early years.

But by the 1960s, Toronto was gradually becoming the center of Canada’s capital markets. The decision of a separatist government in Quebec to introduce laws restricting the use of English businesses in 1977 drastically accelerated that process.

Nymex Holdings, the parent company of the New York Mercantile Exchange, owns about 10 percent of the Montreal Exchange, making it one of the group’s largest shareholders along with the National Bank of Canada and UBS.