Singapore Exchange’s Bocker Faces Revolt on Australia

Magnus Bocker, who stitched together eight European stock exchanges and sold them in a bidding war, is running into a wall with shareholders and politicians over his plan to acquire Australia’s main bourse.

Singapore Exchange Ltd. posted its worst two-day drop in two years after Chief Executive Officer Bocker unveiled an $8 billion takeover of ASX Ltd. this week. Australian Green party leader Bob Brown said he won’t support the bid and Tokyo Stock Exchange Group Inc., with a 5 percent stake in its Singapore rival, warned it will be saddled with losses.

For the 49-year-old marathoner, winning in Asia may prove harder than in Europe, where he combined companies from Lithuania to Iceland to create the region’s fifth-largest exchange. JPMorgan Chase & Co., Credit Suisse Group AG and Deutsche Bank AG cut ratings on Singapore Exchange yesterday, citing regulation, debt and ASX’s growth outlook.

“There are doubts that the transaction will push through,” said Pearlyn Wong, an investment analyst in Singapore at Bank Julius Baer, which manages about $262 billion in client assets worldwide. “SGX is paying a steep premium for ASX and it’s highly questionable if the synergies from this acquisition will materialize.”

Cross-Border Merger

Less than a year after becoming chief executive officer of Singapore Exchange, Bocker unveiled the first cross-border merger of bourses in the Asia-Pacific region, a plan that would create the world’s fifth-largest market operator by share value. The offer was 41.8 percent higher than ASX’s prior closing price, compared with an average of 21 percent for financial companies worldwide in the past year, Bloomberg data show.

The Singapore Exchange’s 11 directors, including the CEO, declined to comment or couldn’t be reached. The combination will result in a more balanced portfolio of listed companies, Bocker said on Oct. 25 in Sydney.

“The world of exchanges is rapidly changing,” Bocker said. “This will make us a stronger player.”

His record on mergers will be tested as he works to overcome regulatory hurdles and investor skepticism. Atsushi Saito, the president of the Tokyo Exchange, criticized the plan. The bourse said in June 2007 that it paid 37.4 billion yen ($457 million) for 4.99 percent of Singapore Exchange.

“It’s not a good story,”Saito told reporters. “Our shareholdings will be diluted, with our stake falling to around 3.1 percent. It’s possible we’ll have a loss of hundreds of millions of yen.”

‘National Interest’

ASX shares jumped 19 percent on Oct. 25 but have since fallen 11 percent in the past two days, as political opposition to deal in Australia mounted. Singapore Exchange rose 1.3 percent today, following a two-day, 8.6 percent slump.

Australian Treasurer Wayne Swan said today he will apply a so-called national interest test to the proposal. The Greens’ Brown said yesterday that the deal shouldn’t go through, citing concern that the “national interest” will be hurt, while independent Australian lawmaker Bob Katter called the plan “lunacy.”

“While Bocker has a lot of experience in cross-border deals in Europe and the U.S., this deal will have difficulty getting through because the Australian political landscape has changed,” said Jamie Coutts, sales manager at BGC Partners in Singapore. “Bocker will have to do a lot more marketing and convincing.”

Bocker, a father of three who collects 1920s glassware, started at OMX when the Swedish company was so small he worked behind a curtain stretched across a larger room.

Quick Turnaround

“He stuck his nose out from behind that cloth and asked very alert questions,” Olof Stenhammar, founder of OMX, said in a 2008 interview. “He is a very rapid thinker, quick to act, extremely decisive.”

Bocker became CEO of OMX in 2003 when the company was losing money, data compiled by Bloomberg show. He exited unprofitable units, sold trading software to exchanges from Helsinki to Singapore and acquired Nordic and Baltic bourses for a total of more than $700 million. Net income increased after 2004, while the stock climbed fivefold while he was CEO.

In May 2007, Nasdaq offered to buy OMX for $3.7 billion in a deal backed by the Swedish company’s board. Borse Dubai made a hostile bid for OMX three months later that was 14 percent higher. Bocker helped broker a compromise in which the Dubai exchange gave up OMX in return for a stake in Nasdaq. Dubai also bought part of Nasdaq’s holding in the London Stock Exchange.

Track Record

“Bocker certainly brings his track record in cementing merger deals,” Coutts said. “The core of every deal is personalities. If the two CEOs have a long-standing relationship, then it obviously enhances the potential for a positive outcome.”

Robert Elstone, the CEO of ASX who has known Bocker for more than a decade, said the Singapore Exchange head has one of the most “successful track records” among exchange CEOs.

Acquisitions often fail to boost value for owners. Shares of more than half the companies that made the biggest purchases in the last mergers-and-acquisitions boom from 2005 to 2008 lagged behind industry peers for two years, according to data compiled by Bloomberg’s ranking group. NYSE shares have tumbled 55 percent since March 2006 as it snapped up companies from Euronext to American Stock Exchange and Archipelago Holdings Inc.

Nasdaq shares lost half their value in 2008 as profit tumbled 39 percent after losses on a currency hedge for its European operations wiped out gains from increased trading. The stock slid 20 percent in 2009 as net income declined 15 percent, according to data compiled by Bloomberg.

Faster Trading

JPMorgan reduced SGX to “neutral” from “overweight,” citing the vulnerability of its share price, regulatory issues related to the bid, and the higher indebtedness that would result. Credit Suisse cut its rating to “underperform” from “outperform,” saying ASX’s growth prospects make it unappealing. Deutsche Bank analyst Andrew Hill lowered his rating on the stock to “hold” from “buy.”

Since Bocker took over at the Singapore bourse from Hsieh Fu Hua last year, he has taken steps to enhance trading, including introducing 19 American depositary receipts of Chinese companies and announcing a S$250 million order processor that may be the world’s fastest when it goes live in 2011.

“He’s shown himself to be very capable and competent at these consolidations, but Asia’s a different environment and I’m sure the skills needed will be different from what was required in Scandinavia,” said Bruce Weber, who specializes in electronic trading and exchanges at the London Business School. “In Asia, his diplomatic skills will be a lot more important.”

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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