Singapore Exchange and ASX have submitted their merger proposal to Australia’s Foreign Investment Review Board, a key hurdle to the deal that continues to face political opposition.
Singapore Exchange, which runs the city’s securities and derivatives market, offered to buy ASX on Oct. 25 in a cash and share deal then valued at A$8.4 billion ($8.4 billion), a 42% premium to ASX’s share price, and worth A$7.5 billion at today’s close of trading in Australia.
The bid, which won approval from Australia’s competition regulator on Dec. 15, still requires the support of Treasurer Wayne Swan, the Reserve Bank of Australia, the Australian Securities & Investments Commission and parliamentarians, several of whom have opposed the sale. To overcome opposition to the deal, the Singapore bourse offered on Feb. 15 to give more board seats to Australians.
The proposed combination also received a boost last month when Europe’s Deutsche Boerse AG and NYSE Euronext agreed to merge, and after London Stock Exchange Group Plc said it would buy Canada’s TMX Group Inc., increasing pressure on rival exchanges to expand. Tokyo Stock Exchange Group Inc. said this week it is considering a merger with Osaka Securities Exchange Co. They are Japan’s two largest bourses.
“I won’t be surprised to see more mergers in the region given that we are looking at really big exchanges in the U.S. and Europe,” said Melvyn Teo, associate professor of finance at Singapore Management University, who has consulted for state wealth funds. “If those mergers are approved, that will present steep competition for exchanges in Asia.”
DRIVING FORCES
These foreign merger announcements “underscore the dynamic forces driving developments in global exchanges,” ASX’s Chief Executive Officer Robert Elstone said in a Feb. 17 statement accompanying the company’s first-half earnings result, which met analyst estimates. He has also said global exchange mergers are an “inevitable” feature of globalization.
Even if the takeover wins all regulatory approvals in Australia, laws amending the Corporations Act will need to be passed in both houses of Australia’s parliament. The minority Labor government led by Prime Minister Julia Gillard needs the support of four independent or Greens lawmakers to pass a bill to raise ASX’s foreign ownership cap to make way for the takeover.
Queensland independent Bob Katter and Greens leader Bob Brown are among those opposed to the ASX sale. Independent members of parliament Rob Oakeshott and Tony Windsor plus West Australian National Tony Crook have said they hadn’t made up their minds on the merger.
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