MONDAY, 01 NOVEMBER 2010

 

SINGAPORE Exchange Limited agreed to buy ASX Limited- Australia’s main Stock Exchange, for A$8.4 billion ($8.3 billion) in cash and shares, in a drive to compete with Hong Kong and Tokyo. Shares in the Singapore Company tumbled the most in two years after the announcement.

The operator of Singapore’s stock market is offering A$48 per ASX share, 37 per cent more than the company’s last price on October 22, the companies said. Shares in ASX closed below the offer price at A$41.75 on concern the deal may not be approved by Australia’s government or regulators. The two exchanges will remain separate legal entities and be regulated locally.

The enlarged company will oversee $1.9 trillion of shares, making it better able to compete with electronic trading platform Chi-X Global Inc, which plans to open in Australia in March. 

It will also vie for initial public offerings with Hong Kong, which has attracted Asia’s four biggest Initial Public Offerings (IPO) since 2006, including last week’s $17.8 billion IPO of American International Group’s Asian unit. The exchanges expect $30 million a year in savings to result from the deal.

“We see SGX’s acquisition of ASX as being richly priced,” Srikanth Vadlamani, an analyst at Nomura Holdings Inc. wrote in a note to clients. “The extent of cost savings implies to us that the success of the deal hinges upon the combined entity being able to realize material revenue synergies. However, we do not see obvious revenue synergies.”

Shares in Singapore Exchange fell 6.2 per cent to close at S$8.95 in Singapore, the most since October 24, 2008. The company’s spokeswoman Magdalyn Liew didn’t immediately return calls seeking comment on the stock’s decline.

ASX shareholders will receive A$22 cash and 3.473 new shares in Singapore Exchange for every share they hold in the Australian bourse operator, the exchanges said.

“The biggest issue for them right now is going to be the regulatory hurdles,” Chris Weston, a Melbourne-based institutional dealer at IG Markets, said. “Given ASX shares’ discount to the offer, traders are clearly erring on the side of caution.”

Singapore Exchange Chief Executive Officer Magnus Bocker, a former president of Nasdaq OMX Group Inc., will be CEO of the combined company and Chew Choon Seng will be non-executive chairman. David Gonski, chairman of ASX, will be group deputy chairman, while Peter Hiom, current deputy CEO of ASX, will head the Australian operation.

The combination, to be named ASX-SGX Limited, will have revenue of $1.1 billion and earnings before interest and tax of $700 million, the companies said. With an estimated market value of $12.3 billion, it will become the world’s fifth-largest listed exchange company, they said.

Merging the Asia Pacific’s fifth- and eighth-largest exchange operators will create a company overseeing $1.9 trillion of shares, compared with Tokyo’s $3.7 trillion and Hong Kong’s $2.6 trillion. 

The companies expect the deal to be implemented in the second quarter of 2011. The merger is in the interests of both countries and the companies are confident they will win regulators’ approval, ASX CEO Robert Elstone said.

“I’d expect any merger between the Australian Stock Exchange and its Singapore counterpart to be closely scrutinized by regulators,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Limited in Melbourne. “Regulators will want to ensure any merger upholds the integrity of the Australian stock exchange and does not compromise it in any shape or form.”

The combination will result in a more balanced portfolio of listed companies, Bocker said. Morgan Stanley advised Singapore Exchange and UBS AG is ASX’s adviser, the companies said.

 

 

Source: Guardian