It seemed like such a good idea at the time…
For Magnus Bocker, chief executive of the Singapore Exchange, SGX’s A$8.1bn ($7.9bn) offer for the larger (but less profitable) ASX was the key to his dream of running a powerhouse exchange.
As the former chief of the Nordic exchange operator, OMX – and having presided over the company’s fiendishly complex merger with Nasdaq which also involved Borse Dubai – Bocker knew that national rules would not hold off rising competition from new, alternative trading platforms. The only answer for the traditional exchanges was to get bigger, cheaper and more technologically savvy – in other words, to consolidate or die.
A combined SGX/ASX would rank as the world’s fifth biggest by market cap, with more listings than any Asian exchange except Mumbai’s BSE. It would also have the region’s biggest markets in real estate investment trusts and exchange-traded funds and the most derivative products.
But, as the FT reports on Thursday, it’s all looking very shaky amid growing political opposition.
The deal must gain shareholder approval in both countries and meet a long list of regulatory requirements. Even so, the chief of the ACCC, the key Australian regulator, had expressed a favourable view of the deal, and apart from a few rumblings from SGX staff, fearful of the impact on jobs, it was all looking smooth.
Notes the FT:
SGX thought it had this taped. According to a person with close knowledge of the transaction, there have been “a lot” of informal contacts with regulators, whose initial response was sympathetic. That is in line with Australia’s openness to foreign capital in general, and its conversion to exchange competition in particular. Singapore Telecommunications and other Singaporean companies have been allowed to acquire Australian assets in the past.
But that was then, and that was Singaporean companies in other sectors such as telecoms. Now, political opposition in Australia is growing.
As Bloomberg reports on Thursday, three key independent Australian lawmakers and other politicians said they would oppose the ASX sale. One independent, Bob Katter, said it would be “lunacy” to give regulatory functions to a foreign country, while another lawmaker, Tony Crook, said it would be a “mistake” to sell the ASX. “We are of a mind to sell everything of late. I think the Australian stock exchange is fundamentally Australian and it should stay here.” The report continues:
That means Singapore Exchange, part owned by the city-state’s government, needs the support of the minority Labor government, which hasn’t decided its stance on the deal, and at least four other legislators in the lower house of parliament to approve the deal.
Meanwhile, key commentators in Australia are warning about the end of national aspirations to be a regional financial hub. And after years of relative indifference, many have suddenly decided that the ASX is a glowing model of efficiency that should not fall into foreign hands. BusinessSpectator’s Robert Gottliebsen writes on Thursday:
The ASX is one of the lowest cost and most efficient stock exchanges in the world. Singapore is not a patch on the ASX and is forced to charge more for most of its trades than the ASX.
This is a case where the less efficient operator is acquiring the more efficient group. Singapore has nothing to teach Australia on securities trading and there is a real risk we will loose our efficiency advantage. Indeed, we have a lot to teach the Singaporeans if they will listen, but given that they will be chairman and CEO of the new group, teaching them will not be easy.
He concludes:
I must emphasise that I have no objections to the Singaporeans. But their takeover bid for the ASX has reminded us that as a nation we will really lose something if we flog off the ASX. And we lose doubly if we sell to a group that is not as efficient as us.
Australia’s Foreign Investment Review Board has up to 120 days to assess the merger and make a recommendation to Treasurer Wayne Swan.
On the other hand, some analysts have taken a distinctly dim view of the value of the ASX for Singapore’s exchange. JPMorgan analysts, for one, have downgraded SGX’s stock rating on concerns about the bid, Bloomberg reports, noting that the proposed takeover – valued at A$8.4bn when it was announced on Monday – is more than twice the average premium of buyouts among publicly traded financial companies around the world in the past 12 months.
JPMorgan, it added, said the rationale for SGX’s bid, valued at A$8.4 billion when it was announced, is “unconvincing”. “ASX is not attractive in terms of profitability and growth profile. It is also set to face stiff margin pressure due to competition.”
But that’s not the view in Australia. And judging by the increasingly hostile chorus coming from the country’s politicians, media and commentators, Bocker is not going to have an easy few months.
Related links:
SGX: First Australia and then — the world? - FT Alphaville
Australian unease grows over ASX/SGX deal – The Australian
SGX/ASX - Lex
Governance a big factor to consider in ASX takeover - SMH