London Stock Exchange shares up 8 per cent as details of TMX merger are unveiled

SHARES in the London Stock Exchange (LON:LSE) opened 8 per cent higher as the City applauded boss Xavier Rolet’s move to merge with TMX Group (TSX:X), the Canadian owner of the Toronto, Montreal and junior TSX-V exchanges.

The all-paper transaction will create one of the largest international bourses with 6,700 listed companies worth an estimated £3.7 trillion, and will catapult the group into fourth position above Nasdaq in terms of annual revenue.

“This deal comes against the backdrop of consolidation in world exchanges and represents the first strategic move by Xavier Rolet and creates a company with a combined market capitialisation of £3.7 billion,” said Shore Capital analyst Phil Dobbin.

“In our view the key benefit is the creation of a global exchange with a strong presence in natural resources and emerging markets and as such we feel it is a positive development for the LSE.” 

His comments appear to reflect consensus in the Square Mile as LSE shares advanced 70 pence to 962 pence. 

The LSE’s chairman, Chris Gibson-Smith, said: "We are today announcing the creation of a global leader in the exchange space ... I believe that together we will be able to offer shareholders and customers a business significantly greater than the sum of our parts."

He said the merger comes at a "hugely important time in the history of capital markets".

The LSE will issue 2.9963 shares for every TMX share, giving investors in the London exchange 55 per cent of the enlarged company.

It will be headquartered in London and Toronto and will be overseen by its existing regulatory authorities.

The deal is the London exchange’s first attempt to claw its way back up the international pecking order after a period on the periphery. 

Former boss Clara Furse rejected bid approaches from Deutsche Börse, Euronext, Nasdaq and Macquarie.

But then the LSE found itself marginalised as merger mania swept the sector.   

As Furse stepped back, the New York Stock Exchange bought Euronext, Nasdaq acquired OMX and Deutsche Börse took over the International Securities Exchange, one of the biggest US options exchanges.

In 2007 the LSE did a deal of its own as it bought Borsa Italia for around £1 billion, though it is fair to say the City was underwhelmed by Furse’s apparent lack of ambition.

Chief executive Rolet said today: "This is an incredibly exciting merger with considerable growth opportunities. 

“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.

"We are aiming at nothing less than becoming a true powerhouse in the global exchange business.”