“Keep your money mate,” was the way Heard on the Street put it in response to Australian Treasurer Wayne Swan’s decision to effectively block Singapore Exchange’s A$8.4bn ($8.7bn) takeover offer of its local rival ASX.
In a remark that took markets (not to mention the protagonists) by surprise, as he spoke before the end of a standard 30-day review period of the deal, Swan said on Tuesday he was “disposed” to rule the merger was not in the country’s national interest.
Although he added that this was not his final decision, and Australia’s Foreign Investment Review Board must still speak – for the little that now appears to be worth – “that’s more or less it”, says the FT’s exchanges maestro, Jeremy Grant.
As the FT reports :
The Australian government effectively killed off the Singapore Exchange’s planned A$8.4bn ($8.7bn) takeover of its Australian counterpart after Wayne Swan, the country’s treasurer, said he was “disposed” to reject the deal as not in the national interest.
Although Mr Swan stressed on Tuesday that his view was preliminary, he startled the market by revealing his position before the end of a standard 30-day review period by the country’s foreign investment regulator. A successful takeover would have created Asia’s second-largest exchange by number of listings, behind the Bombay Stock Exchange but ahead of exchanges in Tokyo and Hong Kong.
It also comes as a wave of mergers and acquisitions sweeps through the securities industry, most recently Nasdaq OMX and IntercontinentalExchange’s $11.3bn offer last week for NYSE Euronext. The Singapore Exchange said it had been invited to provide further comments to Australia’s Foreign Investment Review Board, but people close to the exchange operator said Canberra had made its position clear.
Indeed, even if Swan – and the country’s Foreign Investment Review Board – cleared the deal, it would still require parliamentary approval to rescind a law that prevents a single shareholder from owning more than 15 per cent of the ASX.
That approval, notes the FT, “would be hard-fought for Australia’s minority-led Labor government” because a growing number of Green, independent and National party parliamentarians, who hold the deciding votes, have expressed opposition to the takeover.
The reason, it seems, is a good dose of old-fashioned xenophobia: politicians took fright at the prospect of having the Singapore government – which is on the SGX’s share register – as a shareholder, and also generally over a foreign takeover of the ASX. They may not have read newspapers in the last few months, covering the M&A frenzy in the exchange world.
The Singapore Exchange in February unveiled some concessions in an attempt to get the regulator onside, but Magnus Böcker, SGX chief executive, admitted back then that there was no alternative plan if a merger fails.
The FT’s Grant says “this is a bit of a shocker on two counts”. First, because a rejection seemed unlikely; even though the deal had clearly stoked national interest concerns, the signals seemed right. The last time a big deal was blocked in Australia, he noted, was as far back as 2001 when Shell tried to take over Woodside Petroleum.
Second, is the timing, a week before Australia’s FIRB was due to make a decision; not only that but “a further 90-day period baked into the process won’t come into play either,” adds Grant. If you want to hear more, Grant explains in an FT.com video discussion why, ultimately, the ASX debacle might be the best thing that ever happened to the Singapore Exchange – although not, perhaps, to the hapless Bocker.
In a cruel twist, many are speculating that the Singapore Exchange itself might next come into play. For Bocker, who took over 16 months ago, it would be the ultimate irony. As Bloomberg noted, he “now risks being left out of the biggest round of industry consolidation that he ignited with the ASX bid”. It continues:
Magnus Bocker has cost Singapore Exchange Ltd.’s shareholders $1.5 billion with his gambit to buy Australia’s ASX Ltd. Putting his own bourse up for sale may be the fastest way to recoup those losses.
Since reaching a 2 1/2-year high in the days leading up to its agreement Oct. 25 to acquire Australia’s national exchange, Singapore Exchange tumbled 18 percent on speculation the 42 percent premium it offered ASX was too high. Its stock jumped 4 percent yesterday after Australian Treasurer Wayne Swan said the Foreign Investment Review Board advised him against approving the $8 billion proposal and he had “serious concerns” about the sale, putting the acquisition on the brink of collapse.
Indeed, investors told Bloomberg that Singapore Exchange, which has a higher profit margin than any US market operator, can enrich its owners more by selling itself to larger competitors such as CME Group than trying to catch up with smaller acquisitions.
As for Swan, as BusinessSpectator’s Stephen Bartholomeusz notes:
Wayne Swan must have hoped that Magnus Bocker would go quietly into the night. With the Singapore Stock Exchange chief executive declining to change or formally withdraw his bid for ASX, however, Swan will be forced to formally reject the merger and provide a detailed explanation for why it is contrary to the national interest.
With the general view that the deal has been rejected by Swan for largely political reasons, the rationale for its rejection is going to have to be very carefully developed and worded.
Perhaps from the beginning, the deal was all, as Lex says, “something of a fantasy”.
Related links:
John Durie: Control an easy fix in ASX drama - The Australian
Exchanges Consolidation - FT TradingRoom
Swan clouds SGX vision for Asian bourse – FT
Bocker’s dream turns into a nightmare – FT Alphaville