Purchase to merge London, Toronto exchanges
LONDON - London Stock Exchange Group Plc (LSE), the 210-year-old bourse operator, agreed to buy Toronto Stock Exchange owner TMX Group Inc in an all-share transaction valued at about C$3.2 billion ($3.22 billion) as the companies cut costs to counter lost market share.
LSE shareholders will own 55 percent of the enlarged group, while TMX investors will hold 45 percent, the companies said on Wednesday in a Regulatory News Service statement. TMX shareholders will receive 2.9963 LSE shares for each TMX share held, valuing TMX shares at about C$42.68 each. The stock closed at C$40.28 on Tuesday.
"We are creating the world's largest listings venue for the commodities, energy and natural resources sectors, as well as the premium market for small, mid-size and growth companies," Xavier Rolet, chief executive officer of LSE, said in the statement. "We are aiming at nothing less than becoming a true powerhouse in the global exchange business."
Rolet will become chief executive officer of the enlarged group, which will be renamed after the transaction is completed, according to the statement. Stock in the new company will trade in both London and Toronto.
LSE handled 63.8 percent of UK equity trading last quarter, compared with about 75 percent in 2009, data from the London-based company show. The Toronto Stock Exchange had 64 percent in December, down from 95 percent two years earlier, according to data compiled by the Investment Industry Regulatory Organization of Canada.
The merger is an attempt to maintain profitability and expand in derivatives as the companies' loss of business in trading worsens, said Diego Perfumo, an analyst at Equity Research Desk in Greenwich, Connecticut, who advises hedge funds.
"Competition in equity trading is intensifying, so exchanges need to be able to trade more cheaply and at faster speed against alternative trading venues," Perfumo said.
Operating profit may rise 13 percent through expense reductions at the merged company, Macquarie Group Ltd said in a report sent to clients on Tuesday after the companies confirmed they were in merger talks.
LSE, with average profit growth of 21 percent since 1999, is swapping stock priced at 6.6 times earnings before interest, taxes, depreciation and amortization (EBITDA) for TMX shares that trade at an EBITDA multiple of nine, according to data compiled by Bloomberg. TMX's annual income has risen 3.5 percent annually since 2000.
LSE and TMX are discussing a merger four months after Singapore Exchange Ltd offered to buy ASX Ltd, operator of Australia's main bourse, for A$8.4 billion ($8.49 billion) in a cash and share deal that would create the world's fifth-largest listed exchange company.
Bloomberg News
(China Daily 02/10/2011 page17)
