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Singapore Bourse in Play as Bocker Loses $1.5 Billion: Real M&A

Singapore Exchange Ltd CEO Magnus Bocker
Magnus Bocker, chief executive officer of the Singapore Exchange Ltd. Photographer: Sergio Dionisio/Bloomberg

Magnus Bocker has cost Singapore Exchange Ltd.’s shareholders $1.5 billion with his gambit to buy Australia’s ASX Ltd. Putting his own bourse up for sale may be the fastest way to recoup those losses.

Since reaching a 2 1/2-year high in the days leading up to its agreement Oct. 25 to acquire Australia’s national exchange, Singapore Exchange tumbled 18 percent on speculation the 42 percent premium it offered ASX was too high. Its stock jumped 4 percent yesterday after Australian Treasurer Wayne Swan said the Foreign Investment Review Board advised him against approving the $8 billion proposal and he had “serious concerns” about the sale, putting the acquisition on the brink of collapse.

Bocker, who took over Singapore Exchange 16 months ago after orchestrating the sale of eight European stock markets to Nasdaq OMX Group Inc. in February 2008, now risks being left out of the biggest round of industry consolidation that he ignited with the ASX bid. Singapore Exchange, which has a higher profit margin than any U.S. market operator, can enrich its owners more by selling itself to larger competitors such as CME Group Inc. than trying to catch up with smaller acquisitions, according to Haverford Trust Co. and Stifel Nicolaus & Co.

“It would certainly be in the interest of their shareholders to put themselves up for sale,” said Hank Smith, chief investment officer at Haverford Trust, which manages about $6.5 billion in Radnor, Pennsylvania. “There’s a lot of risk of destroying capital when you get into this merger mania environment. Making acquisitions for the sake of getting big and overpaying and diluting shareholders, you’re representing management, you’re not representing shareholders.”

Acquisition Spree

Carolyn Lim, a spokeswoman at Singapore Exchange, didn’t respond to calls to her office and mobile phone and an e-mail. Michael Shore, a spokesman at CME, said the company doesn’t comment on “rumors or speculation.”

Stock exchanges around the world are merging to stay competitive. More than $30 billion in acquisitions have been announced in the past five months as companies in North America, Europe and Asia try to cut costs and seek new revenue from trading in stocks, options and futures.

Bocker, 49, who combined companies from Finland to Iceland to create Scandinavia’s biggest exchange in Stockholm-based OMX AB, sought to create a regional trading and listings center to attract business away from Hong Kong Exchanges & Clearing Ltd., which at $25 billion has the largest market value among publicly traded exchange operators, data compiled by Bloomberg show.

Biggest Premium

On Oct. 25, Singapore Exchange offered ASX A$8.35 billion ($8.3 billion) in cash and stock to create the world’s fifth-biggest bourse. The deal, valued at A$48 a share at the time of the announcement, was struck at the biggest ever premium for a securities exchange, according to data compiled by Bloomberg.

Bocker’s attempt to forge the first exchange takeover in the Asia-Pacific region has foundered amid nationalism and concern that he was paying too high a price.

While Singapore Exchange offered on Feb. 15 to give more board seats to Australians in a concession aimed at overcoming opposition from lawmakers in Canberra, the takeover may now become the first foreign merger to be opposed on national interest grounds in Australia since former treasurer Peter Costello blocked a $3.2 billion bid by the Hague-based Royal Dutch Shell Plc in 2001 to take control of Woodside Petroleum Ltd. in Perth.

Final Ruling

A final ruling based on the recommendation from the Foreign Investment Review Board, which is part of Australia’s Treasury Department that advises its top executive, is expected within days, Bocker said. The Singapore bourse isn’t considering changes to the bid structure, he said.

Since Oct. 15, when Singapore Exchange reached a more than two-year high, the company has lost S$1.9 billion ($1.5 billion) of its market value, data compiled by Bloomberg show.

While Bocker said he has other options if the deal for ASX falls apart, the decision may leave the Singapore bourse vulnerable as exchanges around the world turn to acquisitions to boost earnings.

Pressure to expand increased in February when Frankfurt-based Deutsche Boerse AG and NYSE Euronext of New York agreed to merge, creating the world’s largest exchange operator, and London Stock Exchange Group Plc said it would buy TMX Group Inc., operator of the Toronto Stock Exchange. Nasdaq OMX in New York and IntercontinentalExchange Inc. of Atlanta made an unsolicited offer for NYSE Euronext last week.

Singapore Exchange has also faced increasing competition in its home market since August, when the Singapore Mercantile Exchange started operating in the city-state.

Exchange Globalization

“The regional stock exchanges will be moving more and more towards globalization,” Donald Gimbel, senior managing director at Carret Asset Management LLC, which manages $1.5 billion, said from Livingston, Montana. “There will be a combination that will include the Singapore stock exchange. Whether they will be the acquirer or the acquiree, I don’t know.”

Bocker’s failure to win support for the ASX acquisition suggests Singapore Exchange shareholders would be better served if he looked for a buyer instead and CME would be a good fit, according to Stifel Nicolaus’s Kevin Caron.

CME, the world’s largest futures market, would gain scale in trading assets it already offers and expand into Asian markets through an acquisition of the Singapore Exchange.

S&P 500 Futures

The Chicago-based exchange’s largest products are equity indexes such as futures on the Standard & Poor’s 500 Index and interest-rate futures based on Eurodollars and U.S. Treasuries.

Singapore Exchange offers futures on the Nikkei 225 Stock Average and the S&P CNX Nifty index and interest-rate futures on Euroyen and Eurodollars. The exchange also lists bond futures on Japanese government debt. Other assets where the exchanges overlap include metals trading and fuel oil contracts.

Both firms also operate their own clearinghouses and are seeking to process over-the-counter transactions.

A CME deal “makes sense,” said Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus, which has $110 billion in client assets. Singapore Exchange has “a complementary Asia-centric clearing platform for equities, derivatives and commodities. There’s very little role for a marginal player in a rapidly consolidating world of exchanges.”

When CME announced a deal last year to become a strategic partner with Sao Paulo-based BM&FBovespa SA, CME Chief Executive Officer Craig Donohue said that “the growth and profit opportunities are the most attractive” in emerging markets.

‘Fit the Bill’

“In that sense, I think Singapore would fit the bill” for what CME wants as it works with exchanges in faster-growing parts of the world, said Ed Ditmire, an analyst at Macquarie Group Ltd. in New York.

Singapore Exchange, which is investing S$250 million in an order-processing system that may become the world’s fastest when it starts this year, had a profit margin of 48 percent in the most recent reported 12-month period, compared with 31.3 percent for CME and 34.6 percent for ICE, Bloomberg data show.

CBOE Holdings Inc., the Chicago-based options market, had a 22.7 percent margin. NYSE Euronext, Nasdaq OMX, Deutsche Boerse and LSE had all margins of less than 20 percent, the data show.

Any potential acquirer of the Singapore Exchange would have to win approval from the Monetary Authority of Singapore, according to Singapore’s Securities and Futures Act. The Singapore government owns a 23 percent stake in the exchange.

“Exchanges are perceived as national treasures and are difficult to let go of, especially in Asia,” Larry Tabb, founder and chief executive officer of Westborough, Massachusetts-based research firm Tabb Group LLC, said in an e-mail. “The first few will be very difficult.”

Overall, there have been 6,347 deals announced globally this year, totaling $646.8 billion, a 27 percent increase from the $510 billion in the same period in 2010, according to data compiled by Bloomberg.

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