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Call it what you like, but the LSE-TMX deal is a takeover

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If it walks like a duck ... The operators of the Toronto and London stock exchanges announced their blockbuster marriage today, heralding what a force the combined company will be if the transaction clears all the shareholder and regulatory hurdles.

As Globe and Mail Streetwise columnist Boyd Erman reported late yesterday, TMX Group Inc. and London Stock Exchange Group PLC will together form the world's premier market for resource companies. As our European correspondent Eric Reguly reports today in the wake of confirmation of the deal, the two bourses combined will have 6,700 listings, more than any other exchange in the world, with a collective market value among those companies of almost $6-trillion.

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Notable in today's announcement, and from the conference call in London, is the use of the term "merger of equals." Read that to mean they don't want it called a takeover of TMX. As in, Canadians lost many of their resource companies to foreign takeovers, so please let's not bill this a loss of the resource marketplace.

Which is it? It's not as clear as these things normally are, but the bottom line is that the LSE is paying TMX stockholders 2.9963 LSE shares for each share they own. After the deal, the shareholders of the LSE will hold 55 per cent of the merged company, and the LSE folks will hold eight of the 15 board seats.

The LSE also gets the chief executive position of the combined group - current LSE CEO Xavier Rolet - while the TMX gets the positions of chairman, president and CFO. There will be co-headquarters, and there's no premium being paid. But, all in all, it sure smells like a takeover. Given the fuss over the successful takeovers of Canada's big mining companies, and the blocked bid for Potash Corp. of Saskatchewan, how might this one play?

"The deal requires approval from Canadian regulators, which could be a stumbling block," GMP Securities analyst Stephen Boland said in a research note.

"To our knowledge, there is a restriction barring any single entity from owning more than 10 per cent of a Canadian exchange. Additionally, the TMX plays an integral role in regulating Canadian markets and regulators may take issue with a combination. Although it was reported that regulation will be unchanged effectively control is passing from Canada."

This is not to say there may not be good strategic reasons for the deal, but at least let's call it what it is. It's certainly the way some see it today. Note this, for example, from today's market commentary by Ben Critchley, a sales trader at IG Index in London: "The London Stock Exchange Group itself climbed 8.9 per cent following an agreement to buy owners of the Toronto Stock Exchange, TMX Group, in an-all share merger valued at around $3.2-billion."

Why does it matter? TMX chief Thomas Kloet said today he's confident the deal will meet the "net benefit" test and that Ottawa will approve what he believes is a good deal for Canada.

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But we are extremely sensitive in Canada, and as a small economy we should be, particularly after the loss of Inco, Falconbridge and many others. If you can kill an unpopular $40-billion takeover of Potash, you can kill a "merger of equals" whose popularity has yet to be tested.

Corporate fight in works A corporate battle is brewing in Alberta, after TransAlta Corp. decided not to proceed with repairs to an important power plant, whose output has been purchased by TransCanada Corp. , The Globe and Mail's Nathan VanderKlippe reports today from Calgary.

In December, two power generating units - called Sundance 1 and 2, with a combined capacity of 560 megawatts - were taken offline for testing. In January, TransAlta determined the units were so corroded they could not be "economically repaired, replaced, rebuilt, or restored and that TransAlta therefore seeks to terminate the PPA in respect of those units."

Now, with TransAlta deciding not to return two units to service, TransCanada is already readying for a fight.

Agrium sees record quarter The commodities boom has helped drive Agrium Inc. to a record fourth quarter.

The agricultural products giant said today it earned $158-million (U.S.) or $1 a share, up markedly from $30-million or 19 cents a year earlier. Revenue climbed to $2.35-billion from $1.44-billion.

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The Calgary-based company also ointed to what it expects will be a strong year going forward.

"Global crop prices and margins are expected to remain well above historic levels in 2011 as a result of very low global grain stocks, providing continued support for the entire crop input market," said chief executive officer Mike Wilson.

"North American nutrient inventories are tight and are expected to remain so as we move into the spring season."

WestJet posts profit surge WestJet Airlines Ltd. today posted a record fourth-quarter profit of $47.9-million or 33 cents a share, up sharply from $20.2-million or 14 cents a year earlier.

Revenue climbed to $692.8-million from $570-million.

B.C. consumers at risk Canadians are struggling with record debt loads, though not every province is equally at risk, The Globe and Mail's Tavia Grant reports today.

Households in British Columbia are most vulnerable to an unexpected economic shock like falling house prices, swift interest rate hikes or a surging jobless rate, says a paper by Toronto-Dominion Bank.

B.C. households most vulnerable to debt shocks

German exports climb German exports climbed in December for the second straight month, highlighting yet again how Europe's biggest economy is rebounding.

Exports rose 0.5 per cent from November, but compared to a year earlier were up strongly.

"Germany's trade surplus widened in December to €14-billion (seasonally adjusted) from €11.9-billion in November, beating expectations for a milder expansion," said economists at Scotia Capital. "Powering the economic recovery in the euro zone, exports gained 18.5 per cent on a year-over-year basis. Imports fell in the month, though remain up 20 per cent for 2010 as a whole. The news was interpreted as modestly supportive of the euro against the continued threat of sovereign debt concerns in the periphery."

Goldcorp sells Osisko stake Goldcorp Inc. has sold off its 10-per-cent stake in Osisko Mining Corp. for about $530-million.

The gold producer said today the money from the sale of its 38.6 million shares will be used to fund existing pipelines, and help the company maintain its "investment grade" balance sheet.

"The sale of our investment in Osisko highlights Goldcorp's continued success in redeploying internal capital from non-core assets to fund our leading growth profile," said chief executive officer Chuck Jeannes.

Tim Kiladze's Morning Meeting In a quick analysis that came out before details of the deal were released today, the Financial Times took a shot at the TMX-LSE merger, Streetwise columnist Tim Kiladze reports.

In Personal Finance today Mortgage poll shows Canadians are hearing the message about paying down debt faster.

Our vision of retirement is rapidly changing. Find out the pros and cons of being employed for life.

In this week's Cash Clash, a high-net-worth couple seek advice on whether they can afford to live a little.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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