Australian Stock Exchange Becoming the Takeover Target

Market Leader informed

Singapore Exchange has plans to take over Australian Securities Exchange (ASX Ltd) and made a bid of 8.26 bn. dollars. The merger project has to be approved by regulatory agencies of both countries. Some analysts believe that there is a risk of resistance on the part of Australian regulators.

The deal will be effected both through exchange of stocks and cash settlement. Singapore Exchange is going to buy stocks of ASX Ltd at 48 dollars each which is at a 30% markup on the closing price. Shareholders of the Singapore Exchange will get 22 dollars per each stock they hold.

Background
Singapore Exchange was established in 1999 following merger of two Singaporean exchanges - currency and stock exchange. In 2000 Singapore Exchange issued its own stocks and
managed to expand trading technologies. Ever since, it has been constantly developing to become currently one of Asia’s major trading floors. The exchange operates electronically. In 2001 it launched SMARTS, software that enables clients to carry out online monitoring of changes in financial indexes of certain securities and the exchange on the whole. Singapore Exchange is unique in the way that it lists stocks of many companies involved in the services industry (in particular, hotels and restaurants).
Even though Singapore Exchange is not among 5 largest stock exchanges worldwide despite its high figures, it serves as a link that brings together Asian companies. For example, in 2007 it acquired 5% of Bombay Stock Exchange. Now it is finalizing it merger with its Australian counterpart.

ASX (Australian Securities Exchange, ASX) is a public company with trades carried out in the exchange itself (rather than electronically, as in case of Singapore Exchange). The main trading floor is situated in the Exchange Center, Sydney. It was created in December 2006 following merger of Australian Stock Exchange and Sydney Futures Exchange.
After their amalgamation, Singapore Exchange and ASX Ltd can become one of the largest exchanges in the region with 1.9 trillion dollars worth of assets under management. It will be second in Asia in terms of the number of companies listed there - 2,700. It is only Hong Kong that has more clients in this region. Given its market cap, the new exchange will, even after the merger, be smaller that other exchanges of Hong Kong, Tokyo and Shanghai.

Many specialists believe that this merger will result in the second largest financial market in the Asian-Pacific region capable of maintaining global competition. According to them, exchanges cannot rely on their domestic markets alone as trading activity has grown there to a degree larger than on many trading floors of the US and Europe. In addition, merger will help these two companies overhaul their own trading systems. SGX and ASX intend to fight the danger of emergence of alternative trading systems and build an updated strategy of growth and cost reduction.
In the current context consolidation of these two companies is a reasonable step as they cut costs of new technologies and opportunities that can play a significant role in their further operation and offer competitive edge. In addition, new markets are emerging on the horizon giving the opportunity to attract as much capital as possible.

However, the domestic market, albeit so expansive, is not enough. So, the exchanges enter other countries’ markets by taking over foreign trading floors, opening their own floors overseas, offering services or cooperation.
Magnus Bocker, CEO of Singapore Exchange, has reported that currently financial flows are moving from West to East and this deal opens a new path for western capital to Asian markets – through the ‘new' company.
The deal should be officially finalized in spring 2011.


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