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How will TMX deal affect big firms?

|Written By Julius Melnitzer

No one knows what the proposed $7-billion merger of the London Stock Exchange and Canada’s TMX Group Inc. will look like when the details of the deal emerge or whether it will overcome regulatory hurdles and take place at all.

Jonathan Levin expects a shift in legal work to London should the TMX-LSE merger go through.

Equally unclear is the merger’s impact on Canada’s legal market generally. But it stands to reason that the different international expansion strategies followed by the major Canadian law firms will produce varying consequences.

It’s hard to imagine, for example, that firms with a significant working presence in London, England, don’t stand to benefit most or at least lose the least.

If, as some predict, potential Canadian issuers gravitate to the LSE over time, Fasken Martineau DuMoulin LLP would seem to be very well placed. In 2007, the firm merged with Stringer Saul LLP, a 30-year-old commercial firm in London ranked 10th among British firms by number of clients in the then-booming alternative investment market.

In one stroke, the move created the first full-service and integrated Canadian-British law firm. It consolidated Faskens’ position as one of the world’s premier mining firms and positioned it to become the most significant Canadian player in London’s still-hot alternative investment market. The merger also gave it the highest profile a Canadian law firm has ever had in Britain.

At the time, Andrew Smith of RBC Capital Markets in London predicted the merger would bring Faskens “the kind of deal flow that ordinarily wouldn’t come to them.”

That appears to be precisely what happened. “We have picked up decent work because of our presence in London,” says Jonathan Levin of the firm’s Toronto office.

“I’m not saying that the LSE-TSX deal is good for Canadian markets or for people working for the TSX and I do suspect we’re going to see a shift of legal work in the securities field and corporate finance to the U.K. largely because London is considered the more prestigious venue.”

If that’s the case, Faskens will be in a good position to pick up work, certainly from its own clients and perhaps from those of other Canadian firms, at its London office.

Ogilvy Renault LLP, which has a representative office of two lawyers in London, is in a different position. When it joins the Norton Rose Group in June, it will enjoy ready access to the international legal practice’s considerable resources in the British capital.

So if Norton Rose’s (as Ogilvys will be called after the merger) Toronto clients want to list in London, they can stay with the same firm. That might get the Toronto office referral points, but the financial impact is uncertain as the Norton Rose Group operates under the concept of non-integrated individual profit centres. Ogilvys wouldn’t comment on the TMX-LSE issue.

Other Canadian firms in London include Stikeman Elliott LLP and McCarthy Tétrault LLP. Blake Cassels & Graydon LLP has a small contingent of five lawyers.

But not all of Canada’s major law firms have offices elsewhere. Borden Ladner Gervais LLP, for example, has long eschewed international expansion by merger or greenfields.

“We’ve always worked with strong local firms in jurisdictions throughout the world, and the fact that the Toronto and London exchanges might be connected shouldn’t make any difference to the effectiveness or reach of how we operate,” says Alfred Page, national leader of the firm’s securities and capital markets group.

Page does, however, raise the possibility of the TSX becoming Pablum for the LSE with larger companies listing in London and then cross-listing in Toronto. “I’m not sure you need to have a presence in London to take advantage of that business,” he says. “Many firms do well in that area without it.”

But, like Levin, Page is concerned that the merger may impede the TSX’s growth or at least stifle its marketing momentum. “We’ve now managed to attract over 100 listings from China without having strong ties to that country,” he notes.

“But how are we going to continue successfully promoting ourselves as a unique mid-market player when we’re in the LSE fold and can’t start throwing rocks at [alternative investment markets] or at Dubai?”

In other words, once the exchanges unite, it may be difficult to differentiate Toronto from London. “That’s especially so in the mining and resource area, where Toronto shines but London has a pretty strong base as well,” Page says. “It may become harder to identify the unique qualities that compel companies from other jurisdictions to list here.”

To be sure, Toronto may have the better trading technology, but liquidity and capital availability are equally important draws. “You also have to wonder whether a combined exchange would really be interested in Canadian niche products like the TSX [Venture Exchange’s] capital pool companies,” Page says.

“On the one hand, the TSX-V is a good feeder for larger exchanges and represents an alternative way to get financing but it’s also riskier than what the LSE runs into on a day-to-day basis.”

Still, Page insists he’s not painting a doom-and-gloom scenario. “It’s a matter of being light on our feet and nimble enough to adjust,” he says. “The firms that thrive in a merger scenario will be those who, on the whole, work best with U.K. colleagues.”

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