Singapore's ASX Takeover Igniting Speculation in Malaysia
Singapore Igniting Exchange Speculation in Malaysia
Jerome Favre/Bloomberg
Hong Kong Exchanges & Clearing Ltd., which manages Asia’s No. 3 stock market, climbed to the highest level since January 2008.
Hong Kong Exchanges & Clearing Ltd., which manages Asia’s No. 3 stock market, climbed to the highest level since January 2008. Photographer: Jerome Favre/Bloomberg
The takeover of ASX Ltd. by Singapore Exchange Ltd. has ignited merger-and-acquisition speculation in other Asian markets.
Investors punished Singapore Exchange Ltd., driving its stock down by the most in two years yesterday, for agreeing to pay A$8.4 billion ($8.35 billion) for Australia’s main bourse. Hong Kong Exchanges & Clearing Ltd., which manages Asia’s No. 3 stock market, yesterday climbed to the highest level since January 2008 and Bursa Malaysia Bhd. jumped the most since March. All three exchanges fell at least 1.3 percent today.
Rising competition from electronic venues and investor demands to cut trading costs have driven at least $68 billion in acquisitions among global exchanges since January 2007, including NYSE Group Inc.’s purchase of Euronext NV and Nasdaq Stock Market Inc.’s takeover of OMX AB, according to data compiled by Bloomberg. The Hong Kong and Malaysian bourses said yesterday they would consider alliances.
“The proposed consolidation between ASX and SGX may draw greater investor attention to Asia, and we would leverage on this opportunity to promote our strengths,” Bursa Malaysia Chief Executive Officer Yusli Mohamed Yusoff wrote in an e-mail. “Any regional efforts by other players that will increase interest of investors to the Asian markets will be looked upon as an opportunity for other exchanges.”
Hong Kong
Hong Kong Exchanges, whose companies have a total market value of $2.6 trillion and range from HSBC Holdings Plc to China Mobile Ltd., jumped 4.9 percent to HK$181.90 on Oct. 25. Shares of the bourse slipped 1.3 percent to HK$179.50 as of today’s 12:30 p.m. trading break in Hong Kong.
Hong Kong Exchanges signed information-sharing agreements with the Hanoi Stock Exchange and the Korea Exchange this year. The bourse has a market value of $25.3 billion and trades at 37 times estimated profit, the most expensive level since at least September 2009.
“Although Hong Kong Exchanges has not identified any significant synergistic opportunities, it is open to possible cooperation,” spokesman Henry Law wrote in an e-mail yesterday.
Bursa Malaysia, which runs the second-largest stock market in Southeast Asia after its neighbor Singapore, jumped 4.6 percent to 8.62 ringgit yesterday. The shares pared gains today, losing 1.5 percent to 8.49 ringgit. The company has a market value of $1.48 billion, or 33 times projected profit. It oversees a $371.4 billion stock market that is home to Genting Bhd., Asia’s third-biggest listed casino operator.
The Taiwan Stock Exchange will “cooperate with other bourses in specific areas such as technical expertise,” Michael Lin, a senior vice president, said by phone from Taipei yesterday. The bourse is unlikely to seek overseas mergers in the “near term,” he said.
Asia in Demand
“A further wave of M&A will happen over time, but it will be a much slower pace,” said Christopher Allen, a New York- based analyst with Ticonderoga Securities LLC. “You look at all the U.S.-based exchanges, they all want exposure to Asia. It’s a fast-growing marketplace.”
Acquisitions often fail to boost value for owners. Shares of 53 companies that made the biggest purchases in the last mergers-and-acquisitions boom from 2005 to 2008 lagged behind industry peers two years later, according to data compiled by Bloomberg’s ranking group. NYSE shares have tumbled 62 percent since March 2006 as it snapped up companies from Euronext to American Stock Exchange and Archipelago Holdings Inc.
‘Regulatory Hurdles’
Singapore Exchange offered cash and stock for ASX to create a company that will fend off rising competition. The bid values ASX at A$46.18 per share or A$8.09 billion, based on Singapore Exchange’s closing stock price yesterday. That represents a premium of 32 percent more than the last traded price of ASX on Oct. 22. Both companies are confident they will win regulators’ approval, ASX Chief Executive Officer Robert Elstone said yesterday.
Shares of ASX surged 19 percent to A$41.75, closing below the projected offer price, on Oct. 25. The stock tumbled today, losing 7.4 percent to A$38.67 for the biggest slump since February 2009. A possible hurdle could be a 15 percent ownership limit of Australian companies by foreign governments, given that Singapore owns a 23.5 percent, non-voting stake in its exchange, Credit Suisse Group AG analysts wrote in a report dated Oct. 26.
“The issue for additional mergers in Asia is the regulatory hurdles,” Paul Zubulake, senior analyst at Boston- based research firm Aite Group LLC, wrote in an e-mail. “Will the countries internal regulators approve foreign ownership?”
Singapore Government Stake
The Singapore government’s stake may be reduced below the 15 percent limit under the terms of Singapore Exchange’s existing offer, the analysts wrote.
The proposed takeover has triggered a backlash from Australian lawmakers, throwing into doubt whether the deal will win parliamentary approval. The Greens, whose votes Prime Minister Julia Gillard needs to pass legislation, “will not be facilitating or supporting this takeover,” leader Bob Brown told reporters today in Canberra. Opposition treasury spokesman Joe Hockey said the offer is “of great concern” and independent lawmaker Bob Katter called the proposal “lunacy.”
Singapore Exchange shares fell 6.2 percent, the most since Oct. 24, 2008, to S$8.95 yesterday even as it predicted $30 million a year in savings from the deal. The stock lost 3.2 percent to S$8.66 today. The company’s spokeswoman Magdalyn Liew didn’t return calls seeking comment on the stock’s decline.
‘Richly Priced’
“We see SGX’s acquisition of ASX as being richly priced,” Srikanth Vadlamani, an analyst at Nomura Holdings Inc., wrote in a note dated Oct. 25. “The extent of cost savings implies to us that the success of the deal hinges upon the combined entity being able to realize material revenue synergies. However, we do not see obvious revenue synergies.”
Singapore Exchange’s offer represents a 42 percent premium for ASX, according to data compiled by Bloomberg tracking 20-day average stock prices, more than twice the 21 percent average for takeovers of publicly traded financial companies around the world in the past year. It’s the third-highest premium among the 15 buyouts in the industry exceeding $1 billion.
The Hong Kong Exchange is the biggest in the world, according to data on the 18 members of the FTSE/Mondo Visione Exchanges Index compiled by Bloomberg. The company’s products and China’s economy make the exchange an attractive business partner, said Thomas Caldwell, who invests in exchanges worldwide as chairman of Toronto-based Caldwell Financial Ltd.
‘Dream Exchange’
“Hong Kong is the dream exchange, because it’s got options, it’s got cash markets -- it’s got what everybody wants to participate in,” said Caldwell, who said he has a “minor” holding of the company. The Singapore acquisition “has jogged everybody that maybe the exchange consolidation phase may have a bit more steam to it, and that could mean some action here.”
Speculation of more tie-ups in the region is rising as the threat of competition increases. Chi-X Global Inc., an electronic trading platform, plans to open in Australia in March. The Singapore Mercantile Exchange, backed by the operator of the largest commodity exchange in India, started business in the city-state in August.
If Asian exchanges “can find opportunities to add value for shareholders, then they have to consider these sorts of things,” said Gavin Parry, managing director of Parry International Trading Ltd. in Hong Kong. “It’s going to be about how exchanges reinvigorate themselves.”
To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
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