Exchange Consolidation: LSE + TMX and Deutsche Börse + NYSE

In a span of mere hours two major stock exchange consolidations were announced. First, the $6 billion joining of the London Stock Exchange with the TMX Group which runs the exchanges in Canada.

The largest shareholder of the newly combined exchange will be Sheik Mohammed bin Rashid Al Maktoum, the ruler of Dubai. He will own 11% of the new entity through a holding company. That is raising a few eyebrows. The announced deal is being sold as a “merger of equals” but the details reveal it to be a takeover by the LSE.

After all, the deal is structured so that there is a swap of 2.9963 LSE shares for 1 share of TMX Group. And after all is said and done, LSE shareholders will control 55% of the merged company, and they will have 8 of a total of 15 board seats. The rest is pageantry to try to sell the deal as an equal ‘merger’. For example, at least one third of the board meetings will be held in Canada or the chairman, president and CFO will all be Canadian residents. The deal still has to be approved by the regulatory and governmental agencies.

It represents yet another wave of consolidations which have been sweeping the financial markets for some time. According to data compiled by Thomson Reuters, in the past decade there have been 600 deals amounting to $94 billion with about half of those being cross-border, like the two we saw today.

Source: “Global stock exchange consolidation may just be starting” (Globe & Mail)

Under the Shade of the Buttonwood
The UK/Canadian deal was quickly overshadowed by the much larger union of Deutsche Borse and the NYSE. The official announcement was hastily released after it was leaked by a German media source. This transaction is also being touted as a “merger of equals” but it is really a takeover of the NYSE by the German exchange. After the all stock deal, Deutsche Borse shareholders would own 60% of the $25 billion merged entity and the NYSE shareholders the remaining 40%.

The new exchange would rival the CME in the futures market and it would create the larges options exchange (by volume). I think it is safe to say that the move towards electronic trading will speed up and the NYSE floor will faint into nostalgia. We’ve come a long way from 219 years ago when a few gentlemen exchanged paper under the Buttonwood tree.

But it remains to be seen if this will help to inject some new vigor into the US capital markets. Or it the regulators and political forces approve. It certainly leaves Nasdaq marginalized for the moment.

Source: “Germans in Talks to Buy Big Board” (WSJ)

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