Deals: ASX-SGX Agree On Wedding Terms

By Glenn Dyer | More Articles by Glenn Dyer

The Australian Securities Exchange and Singapore’s stock exchange have reached agreement to merge in a deal worth $A8.4 billion.

According to a statement yesterday the two exchanges are merging to create the "premier international exchange in Asia Pacific".

"ASX and SGX will remain separate legal and locally regulated entities, and will maintain their existing brands," the statement said yesterday.

"This will allow the two exchanges to maintain their existing iconic identities, which are well established in their home markets and internationally, while enabling customers to benefit from cross-market synergies and the greater scale, diversity and broader expertise of the combined group.

"The pro forma market capitalisation of the combined group was approximately US$12.3 billion as at 22 October 2010, creating the world’s fifth-largest listed exchange group," the two exchanges boasted yesterday.

The two exchanges said there would be pre-tax savings of $30 million, but didn’t say where these would come from. The ASX is the logical area seeing it is being acquired.

The deal values the ASX at $8.4 billion, or $48 per share – with a premium of 37.3% to the $34.96 price the shares last traded at on Friday.

ASX shares jumped sharply yesterday when trading resumed after Friday afternoon’s suspension.

The price ended up more than 19%, or $6.79, at $41.75.

That’s well short of the touted 37% premium on Friday’s closing price.

Investors in Singapore voted with their feet and sent the price of the Singapore Exchange down 6.1% yesterday, which will see the ASX price fall today because of the share component in the offer

SGX is offering a combination of $22.00 in cash plus 3.473 of its own shares for each ASX share.

Australia’s competition watchdog effectively gave the SGX a green light to pursue the deal, saying it did not see any concerns.

Federal Government approval is required because as  piece of national financial infrastructure, any stake over 15% needs the OK. 

The Reserve Bank will have to approve the deal because of the fact that the ASX clearing house backs every ASX transaction and capital needs to be retained in this country for that purpose and not combined in Singapore.

A marriage of the SGX, Asia’s second-biggest listed market, and the ASX, its third largest, would mark Asia-Pacific’s first major consolidation of exchanges in a move designed partly to ward off the threat of alternative trading systems.

The ASX is due to lose its effective domestic monopoly next year, with a new entrant, Europe’s Chi-X Australia, expected to begin operation in 2011.

SGX is 23% owned by the Financial Sector Development Fund which is controlled by Singapore’s central bank. That could be a concern, given that it means the ASX will move from being independent, to partly controlled by a foreign government with no involvement or interest in an efficient Australian financial system or sharemarket, except as an investor.

For that reason, the federal government is likely to demand safeguards, such as maintaining a separate management and corporate structure, market and set of rules for the Australian market. 

It’s also likely that the approval might call for the ASX to be maintained and subject to Australian laws, not Singapore laws.

The approval for the BHP Billiton merger a decade ago (which didn’t have the complication of a national government part ownership of either side), required the merged company to maintain its HQ in Australia and have an Australian chairman, unlike Rio Tinto which effectively broke the undertakings it gave for its takeover of CRA.

But the chairman and CEO will be from the SGX.

Yesterday’s statement said: "This combination will bring together the complementary businesses of two successful exchanges in the Asian time zone, with internationally recognised regulatory standards. The combination leverages the strengths of ASX through its listings, stock options and fixed income franchises, with SGX, the Asian gateway for international listings, equity futures and OTC clearing, to create the region’s pre-eminent exchange group.

"The combined group will augment Australia’s financial market and funds management industry through direct participation in Asian growth, and increase ASX’s and SGX’s competitiveness in a changing global markets landscape.

"As proven platforms for raising capital and managing price risk for the resource sector, ASX and SGX will build on existing distribution and clearing capabilities, and intend to play an important role in establishing price discovery for global commodities in Asia Pacific.

"The combined exchange group, ASX-SGX Limited, will have pro forma revenues of approximately US$1.1 billion and pro forma earnings before interest and income tax of approximately US$700 million, based on the audited financial statements of ASX and SGX, each for the financial year ended 30 June 2010 (“FY2010”)."

The statement said that together ASX and SGX will offer advantages and access in the following areas: 

• Second largest listing venue in Asia Pacific with over 2,700 listed companies from over 20 countries, including over 200 listings from Greater China;

• World’s second largest cluster of companies in the resource sector (more than 900 listings), the largest REITs sector (over 80 listi

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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