Montreal Exchange, TSX Group say in merger talks
29/11/07
By Nicole Mordant and Lynne Olver
VANCOUVER/TORONTO (Reuters) - The Montreal Exchange and TSX Group , operator of the Toronto Stock Exchange, said on Thursday they are in talks about "a possible future business combination," paving the way for a long-awaited union of Canada's biggest derivatives and equities markets.
Shares in the Montreal-based derivatives exchange, which are listed on the Toronto market, soared as much as 26 percent after the groups issued similar, brief statements, which also said there was no assurance a deal will actually take place.
Shares in TSX Group jumped 6 percent on confirmation of the discussions, which follow several reported failed attempts at talks between the two parties in the past few years and come against the backdrop of a slew of mergers between market operators globally.
"It's a deal that should be done," said Tom Caldwell, chairman of Caldwell Securities and Caldwell Asset Management.
"The theme in the exchange space these days is cash markets moving into derivatives markets to get better margins and faster growth, or derivatives (exchanges) taking over other derivatives to round out the product offerings," Caldwell told Reuters.
The Caldwell firms own shares in both exchanges in various client accounts and Caldwell has long been urging them to get together, rather than have one bought by a foreign exchange.
The TSX said Thursday's statement was being released at the request of Market Regulation Services (RS), an independent regulation service for several Canadian equity markets, including the Toronto Stock Exchange.
TSX spokesman Steve Kee declined to comment further.
Montreal Exchange spokesman Jean Charles Robillard said the exchange had been contacted by RS early on Thursday after a sharp movement in its stock ahead of the market's opening and following an article on the Globe and Mail newspaper's Web site.
Quoting unnamed sources, the Globe said TSX Group was back at the negotiating table with the Montreal Exchange with a merger offer that includes "co-CEO roles, distinct responsibilities for each exchange and a premium price."
The Web site said the Montreal Exchange has recently been considering offers from rivals but the TSX's proposal is superior to overtures from two U.S. derivatives exchanges, the New York Mercantile Exchange, or NYMEX, and the IntercontinentalExchange Inc , or ICE.
"If a combination is announced, we believe that a fairly significant premium will be necessary to achieve approval from Montreal Exchange shareholders, some of whom are likely still underwater after its precipitous decline since listing publicly," Dundee Securities analyst John Aiken said.
The Montreal Exchange, which has a market value of about C$1.1 billion, listed in March with an opening price of C$45 a share. However, the stock has fallen sharply since, hurt by a decline in trading volumes in recent months and threats of competition.
By midday, the shares were off their morning highs at C$34.50, for a gain of C$5.31, or 18 percent. TSX Group stock was up C$3.05, or 6 percent, at C$53.15.
A number of investors in both exchanges, as well as analysts, have urged the two to merge, arguing that a combination would reduce obstacles faced by both as competition in their markets increases, and would cut costs.
At the moment, a noncompete agreement exists between the two exchanges but this expires in March 2009, when the TSX is expected to take on Montreal's Canadian derivatives monopoly with the launch of its own equity options products.
At the same time, the TSX is facing its own competition from the planned start-up next year of Project Alpha, a new automated equities trading system being formed by seven of Canada's biggest investment dealers, which are also some of the TSX's largest clients.
(Editing by Rob Wilson)
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