By Boyd Erman
A federal election in the middle of your deal that requires federal approval -- not exactly a dream scenario for a deal maker. But looking at the situation of TMX Group (TMXGF.PK) and London Stock Exchange Group PLC (OTCPK:LDNXF), a May election may not be as big a hurdle as it first appears.
LSE Group has yet to formally start the clock on its Investment Canada review (which doesn't begin until the investor applies). LSE always seemed to be waiting on doing so until the provincial reviews in Quebec and Ontario are completed -- so there's no formal federal review for the election to interrupt.
LSE can kick the can down the road on that until after an election gets sorted out in Ottawa and the government is back at work. The risk is that in the interim the exchange combination plan becomes an election issue, or that the election returns a government that's hostile to the plan.
So far, there's little sign that the issue has political legs. Sure, when asked, people will say that the exchange is a "strategic asset," as evidenced by this Globeandmail.com poll. That echoes the language that Saskatchewan Premier Brad Wall used to great effect in his campaign to stop the takeover of Potash Corp. of Saskatchewan (POT).
Yet there's little buzz of genuine underlying anger that's self-sustaining over TMX and LSE, unlike Potash. After an early bout of bluster by the Ontario government, which seemed designed to test whether voters cared, the government (read: Finance Minister Dwight Duncan) has conspicuously remained silent on the issue. That suggests that the government decided that the electorate in Ontario at the very least didn't care in the same way that the people of Saskatchewan got up in arms about the Potash Corp. bid.
There's nothing at this point to suggest that Quebec feels any different, though elections are strange beasts and it's hard to guess what will become a talking point. Remember Quebec and the arts funding the last time around in a federal election? Few saw that coming.
Another risk is that the election brings a government that's outright hostile to the deal, but even there the odds look long unless people change their stance during the campaign.
Even the left-leaning federal New Democratic Party has said only that the government should ensure the deal is a merger of equals and not a takeover. That hardly sounds like visceral opposition.
Even so, the election uncertainty is yet another reason that investors who bet on takeovers may want to stay away from this one. In general, for arbitrageurs, the exchange merger game has been a rough one.
The spreads on deals like Singapore-ASX and London Stock Exchange-TMX Group are yawning amid concern that the deals won't get done, and the result is that arbs are staying away in droves, as Bloomberg News reports.