Singapore Exchange (SGX) unveiled an agreed AU$8.4 bln ($8.3 bln) takeover offer for Sydney-based ASX Ltd on Monday to create Asia's fifth-largest exchange.
The merger of SGX and the ASX would be the first major consolidation of Asia-Pacific exchanges and aims to ward off the threat of alternative trading systems, line up new avenues for growth and cut costs.
It faces several hurdles, including needing Australia's parliament to lift a 15% ownership cap on ASX and Foreign Investment Review Board (FIRB) approval of the deal.
The FIRB could take a dim view as SGX is 23% owned by the Financial Sector Development Fund, which is controlled by Singapore's central bank.
"There's quite a few regulatory hurdles for this, which is why the shares are trading below the notional value of the offer," said Tom Elliott, a managing director at MM&E Capital.
"There's FIRB and parliament has to actually approve it. You've got a strange parliament, you've got the rural independents. Nothing would surprise me. It just means this is going to take a while, so there's that uncertainty."
SGX offered a combination of A$22.00 in cash plus 3.473 of its own shares, valuing ASX shares at A$48.00 each — a 37% premium to their last trade on Friday.
Shares in ASX spiked as much as 25% to A$43.89 after it resumed trade, still well short of a record high of A$61 in early 2008, and were up 20%.
SGX shares fell as much as 6.7% and last traded down 5% at S$9.06.
DEFENSIVE MOVE
SGX-ASX will oversee a market worth about $1.9 trln, ranking it fifth behind Tokyo, Hong Kong, Shanghai and Mumbai among Asian bourses according to the World Federation of Exchanges.
"The market will view a SGX-ASX combination as a defensive one, both being exchanges that have relatively mature organic domestic growth opportunities and facing the prospect of losing effective monopoly status with rising pricing pressures as alternative exchanges and trading venues erode share over time", Citigroup analyst Robert Kong said in a note to clients.
The ASX is due to lose its effective domestic monopoly next year, with a new entrant, Europe's Chi-X Australia Pty, expected to begin operation in 2011.
A combined SGX-ASX, Asia's second and third largest listed exchange operators behind Hong Kong Exchanges and Clearing (HKEx), would create a company with a combined market capitalisation of about $12 bln, ranking it the world's fifth largest by that measure.
"This will be a highly competitive exchange group in an increasingly globalised world," SGX Chairman J. Y. Pillay said in a statement.
The deal comes just 10 months after Magnus Bocker, former head of NASDAQ OMX, took over the job as CEO of SGX.
In this time, he has also launched trading of American Depositary Receipts of Asian firms in Singapore and set up Chi-East, a "dark pool" joint venture with Nomura's Chi-X.
Bocker is set to become chief executive of the combined group, while SGX's chairman-elect Chew Choon Seng is slated to become the non-executive chairman.
SINGAPORE
The deal would be the second-biggest overseas takeover by a Singapore-listed company after Singapore Telecommunications bought Australia's Optus Ltd in 2001 for $9.5 billion including net debt, Thomson Reuters data shows.
It is a sign of how Singapore is trying to make itself one of Asia's premier financial and wealth management centres. It also ranks as Asia's second-biggest foreign exchange trading centre after Tokyo.
SGX said it had secured an 18-month bridging loan to finance the deal and would not be raising equity ahead of the purchase, expected to complete in the second quarter of 2011.
UBS is acting as financial adviser for ASX. Morgan Stanley is acting as financial adviser for SGX.
