MONTREAL — Here's the scene: The CEO of a big financial exchange has just pulled off what looked to be impossible - that is, he has signed a friendly merger deal with a more profitable, but culturally incompatible, rival - when he's called to the rescue by a subprime-sinking bank in dire need of new hands on the deck. Who's the leaderless exchange going to call?
This is the situation in which TSX Group, on the cusp of closing its $1.2-billion takeover of the Montreal Exchange, finds itself after chief executive officer Richard Nesbitt's surprise announcement that he's moving to CIBC World Markets next month.
Sounds unprecedented. It's not.
The New York Stock Exchange found itself in the same boat in November when it lost CEO John Thain, the American who only months earlier managed to out-suave then French president Jacques Chirac and close a $14.4-billion (U.S.) takeover of Euronext. Mr. Thain jumped to the top job at Merrill Lynch after the Wall Street investment bank took an $8-billion writedown on its subprime mortgage exposure.
The most obvious candidate to replace Mr. Thain was Jean-François Théodore, the Frenchman who soothed his own countrymen's injured pride at seeing the Paris Bourse fall to Yankees. Euronext runs stock exchanges in the French capital, as well as Amsterdam, Brussels and Lisbon. It also owns the London derivatives exchange, Liffe.
Mr. Théodore was apparently bound by the original merger agreement to remain deputy CEO of NYSE-Euronext. So, the CEO's job went to a Big Apple-based American, Duncan Niederauer. Paris has been burning ever since.
Truth be told, Mr. Théodore should be grateful he didn't get the job. It would have left him with the unpalatable task of implementing the rationalization plan that aims to achieve more than $400-million in synergies by next year. About two-thirds of that is to come from merging trading platforms and information systems.
What has Paris up in arms is that the NYSE executives are favouring their Arca online cash trading platform, previously known as the Archipelago Exchange, over the French-developed NSC system. If you read French reports on the affair, NSC is a vastly superior technology, the proof being that Euronext has commercialized it internationally with great success.
At the time of the merger, the top tech jobs were split between Arca's Jerry Putnam and Euronext's Tarak Achiche. But both left and a single American, Larry Leibowitz, is now in charge of the department.
The French now fear for the survival of NSC, and for the high-calibre jobs in Paris that come with it. According to French business daily La Tribune: "The philosophy and the promises of the merger have been flouted."
This should all be food for thought for those who think MX chief Luc Bertrand is a shoo-in for the top job at TMX Group (the proposed merged entity's new name). The centripetal forces at work in mergers of this nature mean he would be in a better position to defend Montreal's status as the centre of derivatives trading and technology development if he stayed put.
What happens with Montreal's SOLA trading system, its pride and joy, and its more than a hundred tech-related jobs? They're safe for now. But technology is constantly evolving and it, too, could find its way to Toronto when it's time for an IT overhaul.
Once ensconced at the centre of the universe - aka Toronto - Mr. Bertrand might be incapable of resisting the urge to go native. The perfectly bilingual francophone from Cornwall, Ont., might actually grow to like Bay Street and its centralizing tendencies. He wouldn't be the first.
So what? Wouldn't that be a victory for national unity and economic efficiency?
Not likely. Besides, everyone now knows that cities, not countries, are at the core of economic growth and dynamism. The rivalry between Montreal and Toronto is not a puerile game of marbles. From that rivalry, innovation has occurred. The MX is living proof.
Paris is already having second thoughts about its deal, even though it kept its stock exchange and half of the management and board seats at NYSE-Euronext are reserved for Europeans.
France's Finance Minister, Christine Lagarde, a French oddity in that she spent almost her entire law career in Chicago, has just struck a "high committee" to address the decline of Paris as a financial centre.
Exchange consolidation is starting to ruffle economic nationalists everywhere. Which leads to an interesting question: If consolidation is a trend today, who's to say deconsolidation won't be the trend tomorrow? Pendulums swing.
MX shareholders vote on the TSX offer on Feb. 13, well before the Autorité de marchés financiers holds public hearings on the deal. By then, such hearings will be a chance for opponents to vent, nothing more.
All we know is that "Je ne regrette rien" is not a refrain you hear a lot these days in Paris financial circles.
Bourse de Montréal
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