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Singapore Exchange Recasts ASX Bid to Fight Lawmaker Opposition

Singapore Exchange Ltd. and ASX Ltd. halted trading in their shares pending a statement concerning changes to “governance arrangements” in relation to their proposed merger. Photographer: Munshi Ahmed/Bloomberg
Singapore Exchange Ltd. and ASX Ltd. halted trading in their shares pending a statement concerning changes to “governance arrangements” in relation to their proposed merger. Photographer: Munshi Ahmed/Bloomberg

Feb. 15 (Bloomberg) -- Singapore Exchange Ltd., pursuing a A$7.78 billion ($7.78 billion) takeover of ASX Ltd., offered to give more board seats to Australians as the companies battle to overcome opposition to the deal from lawmakers in Canberra.

The ASX-SGX Ltd. board will include five Australian and five Singaporean citizens in its 13 members, ASX said in a statement today. That compares with just four Australians on a board of 15 proposed when Singapore Exchange launched its bid in October. The three international directors will be drawn from Singapore Exchange's current board, including Chief Executive Officer Magnus Bocker.

Giving more board seats to Australians may reduce resistance from Canberra lawmakers who oppose the merger on national interest grounds. The concession comes as a proposed tie-up between Deutsche Boerse AG and NYSE Euronext, plus London Stock Exchange Group Plc’s acquisition of Canada’s TMX Group Inc., increase pressure on rival exchanges to expand. ASX shares rose and Singapore Exchange fell after the statement.

“It’s a step in the right direction that addresses some of the main issues and concerns and it certainly improves their chances” of getting the deal through, said Paul Xiradis, who manages about $12 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney. “I’m not sure it’s going to pacify or sway everyone.”

Singapore Exchange offered further concessions, including a pledge to keep key staff in Australia and to invest in services -- including an Australian dollar interest-rate-swaps clearing facility -- in the country, according to ASX’s statement on the restructure.

More Hurdles

The bid, which won approval from Australia’s competition regulator on Dec. 15, still requires the support of Treasurer Wayne Swan, the Foreign Investment Review Board, the Reserve Bank of Australia, the Australian Securities & Investments Commission, and parliamentarians, several of whom have opposed the sale.

Chew Choon Seng, current chairman of Singapore Exchange, will be chairman of the combined group and David Gonski, now ASX chairman, will be the merged company’s deputy chairman. Bocker, who will be managing director and CEO, said today the latest proposal was “a merger of equals.”

“It doesn’t feel like that,” said Chris Hall, who helps manage $4 billion at Argo Investment Ltd. in Adelaide, Australia, which owns ASX shares. “They are trying to appease regulators and the government.”

Share Reaction

ASX shares climbed 1.7 percent to A$39 in Sydney today after a trading halt was lifted. That was the highest level since the merger was announced on Oct. 25. Singapore Exchange shares fell as much as 1.6 percent to S$8.22 when they resumed trading today.

Singapore Exchange, which runs the city’s securities and derivatives market, offered to buy ASX in October in a cash and share deal then valued at A$8.4 billion. It would be the first merger between two exchange companies in the Asia-Pacific region.

The announced value of the merger represented a 42 percent premium to ASX’s share price. That’s five times the premium being offered by LSE for TMX.

Singapore Exchange’s bid values ASX at 19.5 times earnings before interest and taxes, almost twice as much as the 10.4 times involved in LSE’s bid for TMX Group. That also compares with the 22.8 times earnings before interest and taxes NYSE Group Inc. paid for Euronext NV in 2007 and the 21.4 times EBIT that CME Group Inc. valued Nymex Holdings Inc. at a year later, data compiled by Bloomberg show.

Merger Deals

The Deutsche Boerse and LSE deals announced on Feb. 10 represented the biggest day ever for mergers of securities exchanges. The boards of Deutsche Boerse and NYSE Euronext plan to vote today on whether to combine the companies.

CBOE Holdings Inc. and Nasdaq OMX Group Inc. shares rallied in the U.S. yesterday amid speculation they may be the next exchange operators to be purchased.

“Recent developments in global exchange mergers affirm the judgment of the ASX board that ASX must participate in regional and global consolidation,” ASX’s Chairman Gonski said in today’s statement.

Bocker said today Singapore Exchange will submit its revised application to Australia’s Foreign Exchange Review Board in “the next few weeks.”

There will be no change to the price of the proposed merger with ASX, Bocker said today in a conference call after the announcement. The deal was worth A$7.78 billion at yesterday’s close of trading.

‘Modest Change’

“It’s a modest change,” said Angus Gluskie, who manages about $350 million at White Funds Management Pty in Sydney and owns ASX shares. “I can only imagine they would have bothered to make the change if the move from four to five directors was viewed as material to regulators.”

Even if Singapore Exchange’s takeover wins all regulatory approvals in Australia, laws amending the Corporations Act will need to be passed in both houses of parliament. The minority Labor government led by Prime Minister Julia Gillard needs the support of four independent or Greens lawmakers to pass a bill to raise ASX’s foreign ownership cap to make way for the takeover.

Queensland independent Bob Katter and Greens leader Bob Brown are among those opposed to the ASX sale. Independent members of parliament Rob Oakeshott and Tony Windsor plus West Australian National Tony Crook said they hadn’t made up their minds on the merger and want to hold further talks with the government.

In an e-mailed statement from his office today, Katter said that ASX needs to “remain entirely in Australian hands.”

Oakeshott was more open to the latest proposal. “If we need more Australians on the board and a rule to keep the company’s head office here to swing public opinion behind it, that’s an argument we have to have,” he said in a telephone interview. “The government can’t afford to delay this.”

To contact the reporters on this story: Shani Raja in Sydney at;

To contact the reporter on this story: Sarah Jones in Sydney at

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