TSX Group Inc will buy the Montreal Exchange Inc in a C$1.3 billion ($1.3 billion) deal that will create an integrated exchange group, the TMX Group Inc, the companies said on Monday.

The TSX Group will indirectly buy all of the Montreal Exchange's outstanding common shares for a total consideration of 15.3 million TSX Group common shares and C$428 million in cash.

Montreal Exchange shareholders will get 0.5 of a TSX group share and C$13.95 in cash after full proration.

The companies said the deal represents C$42.56 in value per MX common share based on the Dec. 7 closing price of TSX Group common shares.

Richard Nesbitt will be the chief executive and Luc Bertrand will be the deputy chief executive officer of TMX Group.

Bertrand will continue as president and chief executive of MX and will also assume responsibility for information technology of the TMX Group.

The companies said they are targeting cost synergies of C$25 million per year through optimizing technology platforms, rationalizing premises and data centers and reducing corporate costs. Most of the synergies expected to be realized in 2009.

In addition, revenue synergies will be targeted through the development of new trading, clearing and market data products and by leveraging the broader platform across multiple asset classes, the companies added.

The head office of TMX Group will be in Toronto. The Board of Directors, with 18 members initially, will be chaired by Wayne Fox, the current chair of TSX Group. It will include five MX designated board members, including Bertrand. The agreement requires that 25 percent of the directors of TMX Group be residents of Quebec.

The head office of Montreal Exchange and the derivatives trading and related product operations will remain in Montreal.

The Montreal Exchange board of directors said it recommended that MX shareholders vote in favor of the deal.

The transaction is expected to close in the first quarter of 2008. ($1=$1.01 Canadian) (Reporting by John McCrank; Editing by Bernadette Baum)

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