The London Stock Exchange is to buy Canada's TMX stock exchange operator to create the world's fourth-largest trading center and claw back some of the market share it has lost in recent years.

Shares in the LSE, first established in 1698, jumped 9 percent as markets welcomed the all-share deal. It values the Toronto group at about $3.2 billion and gives the new company a market value of 4.3 billion pounds ($6.9 billion) based on Tuesday's prices.

The deal looks like a defensive looking merger of equals driven by competitive pressures ... and geographical constraints i.e. the need to attract more international business, said Oriel Securities in a research note.

Under the helm of Xavier Rolet, the LSE is fighting to win back market share lost to upstart rivals, after Europe opened markets in 2007, challenging incumbent stock exchanges that had long been protected behind national boundaries.

The LSE's share of UK equity trading so far this month has been 54.9 percent, compared with 96.3 percent in February 2008, according to Thomson Reuters data, while new entrants like BATS and Chi-X are rapidly gaining clout.

The deal would also create the world's biggest center for trading mining and energy shares if it overcomes likely political opposition in Canada.

Shareholders in TMX Group will receive 2.9963 LSE shares for each TMX share they hold, the companies said on Wednesday, and LSE shareholders will end up owning 55 percent of the combined group, to be headed up by Rolet from London.

TMX finance chief Michael Ptasznik will be chief financial officer of the new group, based in Toronto.


Rolet was confident that Canada regulators would approve the deal. Foreign takeovers there have become a sensitive political issue ever since the government blocked BHP Billiton's $39 billion bid for Potash Corp.

The value of the mining and energy stocks that will dominate the combined exchange has surged along with the boom in commodity prices.

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, Rolet said in a statement.

The newly created group would be the world's fourth-largest in terms of value traded -- the most meaningful benchmark in terms of revenue generated -- and the second-largest in terms of total listed market capitalization.

The deal comes as the Singapore Exchange plans a $7.8 billion acquisition of Australian stock exchange operator ASX -- another major center for mining stocks -- in a deal that has run into strong opposition in Australia.

It is a marked change of strategy from the days when Rolet's predecessor Clara Furse spent much of her tenure -- from 2001 to 2009 -- fighting off hostile takeovers.

Deutsche Boerse, Euronext and Nasdaq all looked at acquiring the LSE in deals that would have made it part of one of the world's top trading groups.

Shares in LSE hit their highest level since September 2008, changing hands at 971 pence at 0941 GMT, up 8.86 percent on the day. TMX, which also reported fourth-quarter results that fell short of expectations on Wednesday [ID:nN08113519], closed 1 percent higher on Tuesday.

(Writing by Douwe Miedema; additional reporting by Sudip Kar-Gupta and Victoria Howley; Editing by Andrew Callus)

($1 = 0.6223 pound)