ASX Ltd., the owner of Australia’s stock exchange, tumbled the most in 20 months as some of the nation’s lawmakers said they’ll try to derail its A$8.09 billion ($8 billion) takeover by Singapore Exchange Ltd.
Shares of ASX fell 7.4 percent in Sydney trading after Bob Brown, the leader of the Greens party, said he “will not be facilitating or supporting this takeover.” Opposition treasury spokesman Joe Hockey said the proposal is “of great concern” and independent lawmaker Bob Katter called the plan “lunacy.”
The stock is trading more than 15 percent below Singapore Exchange’s A$46.18 cash-and-share offer on speculation the plan to create the world’s fifth-biggest listed bourse will fail. Singapore Exchange, part-owned by the city-state’s central bank, offered more than twice the average premium of financial company buyouts in the past year in its drive to compete with Hong Kong.
“It will become a political football,” said Anil Hargovan, an associate professor specializing in legal and policy issues at Australian School of Business at the University of New South Wales. “Having a hung parliament won’t help the situation.”
ASX fell to A$38.67 at the 4:10 p.m. close of trading in Sydney. SGX shares slumped the most in two years yesterday, reducing the value of the bid from an initial A$48 per share. The stock fell a further 2.6 percent to a five-week low of S$8.72 today amid concern the offer is over-priced.
The initial offer was 41.8 percent higher than ASX’s last closing price before the bid, compared with an average of 21 percent for takeovers of financial companies worldwide in the past year, according to data compiled by Bloomberg. It’s the third-highest among 15 buyouts valued at more than $1 billion.
JPMorgan Chase & Co., Credit Suisse Group AG and Deutsche Bank AG. cut their investment ratings on Singapore Exchange, citing regulatory issues, increased debt and ASX’s growth outlook.
“It’s not a good story,” said Atsushi Saito, president of Tokyo Stock Exchange Group Inc., which owns almost 5 percent of its Singapore rival. “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.”
The takeover requires an amendment to Australia’s Corporations Act to allow the Singapore-based company to own more than 15 percent of ASX, Australia’s treasury department said in an e-mailed statement. The amendment must be lodged in parliament, and lawmakers have 15 days to object, it said.
Prime Minister Julia Gillard’s minority government relies on the support of the Greens and two independent lawmakers to pass legislation in the lower house of parliament.
The transaction also requires approval from Treasurer Wayne Swan under foreign investment rules and signoff from the Australian Securities & Investments Commission, the Monetary Authority of Singapore and both sets of shareholders.
The proposal would be subject to “extensive regulatory considerations” because ASX is an important part of the nation’s financial system, Swan told parliament today.
“So we will continue to consider all transactions with the objective of carefully and methodically building Australia’s reputation as a financial services hub and, as always, we will do this in the national interest,” he said.
The opposition will be briefed by the ASX on the merits of the sale this week, a spokesman for Hockey’s office said by phone today. It’s too early to say if the opposition would block the transaction in parliament, the spokesman said.
Singapore’s Central Bank
Singapore Exchange’s largest shareholder is SEL Holdings Pte, which owns a 23.5 percent non-voting stake on behalf of the Financial Sector Development Fund, according to the exchange’s 2010 annual report. That fund is controlled by the Monetary Authority of Singapore its website shows.
MAS will study the details of the merger proposal when they are submitted, the central bank said in an e-mailed statement.
“It is of great concern, unless it can be proven otherwise, that our major regional competitor is buying out our own stock exchange,” Hockey told Australian Broadcasting Corp. radio today. Asked whether there are national interest questions to be answered, Hockey said: “Of course there are.”
“The stock exchange itself would be acting in the best interests of its shareholders, and I can understand that, but it’s up to the treasurer of Australia to act in the best interests of our nation,” he said.
Katter, an independent legislator from the Australian state of Queensland, said the proposal is “lunacy on a grand scale.”
“Soon there will be nothing left in this country that Australians will own,” he said in a statement late yesterday.
The reaction by Australian lawmakers is reminiscent of the backlash against China’s Aluminum Corp. of China’s proposed $19.5 billion investment in Rio Tinto Group last year. That deal prompted National Party Senator Barnaby Joyce to appear in television advertisements opposing the deal. Newspapers ran headlines attacking the proposal.
Singapore Telecommunications Ltd.’s purchase of Australia’s Cable & Wireless Optus Ltd. in 2001 also faced hurdles amid concern the purchase would effectively hand control of defense satellites to SingTel’s biggest shareholder, the Singaporean government. The satellites transmitted military information between the U.S. and Australia.
SingTel later signed a pact with Australia’s defense ministry to safeguard military communications.
Magnus Bocker, chief executive officer of the Singapore Exchange, and ASX CEO Robert Elstone said yesterday in Sydney that they’re confident the deal will win regulatory approval. The combination is in the national interest of both countries, Elstone said during a media briefing.