Singapore Exchange's $7.9 Billion Takeover of ASX Is on Brink of Collapse

Singapore Exchange Ltd. (SGX)’s A$7.6 billion ($7.9 billion) bid for bourse operator ASX Ltd. (ASX) is on the brink of collapse after Australia said the takeover was not in the national interest.

Australian Treasurer Wayne Swan said the Foreign Investment Review Board advised him against Singapore Exchange’s bid, and that he had “serious concerns” about the proposal. Chief Executive Magnus Bocker said the Singapore bourse isn’t considering changes to the bid structure.

“Subject to further consideration, I intended to accept the unanimous FIRB advice that the takeover would not be in the national interest,” Swan said in a statement. “I am still open to further representations or information from the parties before coming to a final decision.”

Singapore Exchange offered to buy ASX on Oct. 25 in a cash and share deal then valued at A$8.4 billion, a 42 percent premium to ASX’s share price. The bid was opposed by several Australian parliamentarians. Pressure on rival exchanges to expand increased in February when Europe’s Deutsche Boerse AG (DB1) and NYSE Euronext (NYX) agreed to merge, and after London Stock Exchange Group Plc said it would buy Canada’s TMX Group Inc. (X)

National Interest

It is the first proposed foreign merger to be opposed on national interest grounds in Australia since former treasurer Peter Costello blocked a $3.2 billion bid by Royal Dutch Shell Plc in 2001 to take control of Woodside Petroleum Ltd. A final ruling on the bourse takeover is expected within days, said Singapore Exchange’s Bocker.

ASX shares dropped 3.3 percent after the announcement today, while Singapore Exchange’s shares jumped as much as 6.5 percent.

“I don’t think SGX or ASX will sit where they are and accept it,” said Angus Gluskie, who helps manage $350 million at White Funds Management Pty in Sydney. “It’s one thing for the government to say it’s not in the national interest, but they’ve got to look at it from the company’s position where they’re saying it’s a practical necessity for them to continue operating in a competitive manner.”

Exchange Consolidation

Singapore Exchange offered on Feb. 15 to give more board seats to Australians in a concession aimed at overcoming opposition from lawmakers in Canberra to the deal, which won approval from Australia’s competition regulator on Dec. 15.

The Singapore bourse today said it would continue to pursue organic and other strategic growth opportunities, including further talks with ASX on other forms of cooperation. ASX spokesman Matthew Gibbs said in an e-mail to Bloomberg News today that his company would keep looking at merger opportunities.

“Bearing in mind that FIRB have communicated with SGX, not ASX, our position is that we continue to believe in the importance of participating in exchange consolidation, and we’ll continue to look at opportunities there, including further dialogue with SGX,” Gibbs said.

‘Compelling Logic’

“The compelling business logic is for fewer platforms around the world,” said Shaun Manuell, who helps manage A$750 million in Australian stocks at Equity Trustees in Melbourne. “ASX is going to have to sit down with the government and have a clear understanding of the basis by which they would allow global M&A activity to occur.”

Singapore Exchange’s bid valued ASX at 19.5 times earnings before interest and taxes, almost twice as much as the 10.4 times involved in London Stock Exchange Group Plc (LSE)’s bid for TMX Group, data compiled by Bloomberg show. That also compares with 11.2 times offered by Deutsche Boerse AG for NYSE Euronext.

ASX shares fell 3.3 percent to A$33.70 at the 4:10 p.m. close of trading in Sydney today, and Singapore Exchange jumped as much as 6.5 percent to S$8.53 following Swan’s comments.

Shareholders Unhappy

“SGX was de-rated when it announced the deal as shareholders didn’t really like that they were offering a very a high premium,” said Anand Pathmakanthan, an analyst at Nomura Holdings Inc. in Singapore. “It is only logical that with the deal effectively called off, the share price should re-rate.”

The Foreign Investment Review Board is a unit within Australia’s Treasury Department and gives advice to the treasurer on whether proposals should be approved. The treasurer then makes a decision and announces it, often without providing details on the board’s recommendations.

The FIRB’s recommendation allows the minority Labor Party government of Prime Minister Julia Gillard to avoid trying to pass legislation enabling the deal through a potentially hostile parliament, said Barnaby Joyce, an opponent of the merger and a member of the opposition coalition partner the Nationals.

“This is convenient for the government because it doesn’t have to face the political reality that there is no way the parliament would have approved this nonsense deal,” Joyce said in a phone interview from Tamworth today. “It would have seen the closure of Sydney and Australia as a commercial center if this ludicrous proposal had been approved -- jobs would have disappeared.”

Unusual Release

Greens leader Bob Brown, another opponent, said in an e- mailed statement that there was no use in Swan’s comment that the government would look at a restructured deal: “So what? It would still be controlled by Singapore regardless,” he said.

The advice from the Australia’s Foreign Investment Review Board is not usually released before the treasurer announces a decision. Public sentiment against it has been building, with lawmakers including independent Bob Katter raising nationalist sentiment.

“The government has taken an unprecedented step of releasing the advice without making a decision on it,” said Rick Kuhn, a political analyst at the Australian National University. “It’s inconceivable that Swan would now go ahead and approve this deal as the nationalist backlash would be even greater.”

The government’s two-party preferred support fell to an eight-year low of 45 percent in a Newspoll published in the Australian newspaper today. The poll of 1133 people conducted between April 1 and April 3 had a margin of error of plus or minus three percentage points.

“They don’t have much going for them at the moment,” Kuhn said.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Gemma Daley at gdaley@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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