Bocker Strategy in Jeopardy With Singapore Exchange Poised to Lose ASX Bid
Magnus Bocker, the Singapore Exchange Ltd. (SGX) chief executive officer whose attempt to take over Australia’s bourse spurred a $20 billion round of global market consolidation, may have lost his partner.
Australian Treasurer Wayne Swan said the Foreign Investment Review Board advised him against the A$7.74 billion ($8 billion) offer for ASX Ltd. (ASX), which would have created the world’s fifth- largest exchange operator by the value of its shares. Singapore Exchange expects a final ruling within days, the CEO said yesterday on a conference call.
Rejection is rare for Bocker, who stitched together eight European stock markets and sold them in a bidding war to Nasdaq OMX Group Inc. (NDAQ) four years ago. While the 49-year-old marathoner said he has other options should the deal fall apart, the decision may leave the Singapore bourse vulnerable as exchanges around the world run out of ways to boost earnings.
“He hasn’t accomplished what he set out to accomplish,” said Alison Crosthwait, Toronto-based director of global trading strategy for Instinet Inc., a New York-based subsidiary of Nomura Holdings Inc. in Tokyo. “Bocker knew there would be challenges. Acquiring a national exchange is an ambitious thing to do, but this is a bit of a setback.”
Singapore Exchange’s shares rose 4 percent to S$8.33 yesterday after losing 16 percent since Oct. 22, the last trading session before the deal was announced. They have gained 8.5 percent since Bocker was appointed CEO on July 20, 2009, compared with a 28 percent advance in the FTSE Straits Times Index, data compiled by Bloomberg show.
“Asia will remain the world’s growth engine in the coming decades,” Singapore Exchange said in a statement yesterday. “We will continue to pursue organic as well as other strategic growth opportunities, including further dialogue with ASX on other forms of cooperation.”
Singapore Exchange offered to buy ASX on Oct. 25 in a cash and share deal valued at A$8.35 billion, or 37 percent above ASX’s share price. Pressure to expand increased in February when Europe’s Deutsche Boerse AG (DB1) and NYSE Euronext agreed to merge, creating the world’s largest exchange operator, and London Stock Exchange Group Plc (LSE) said it would buy TMX Group Inc. (X), operator of the Toronto Stock Exchange.
Bocker sought to create a regional trading and listings center that would compete against Hong Kong Exchanges & Clearing Ltd., which at $25 billion has the largest market value among publicly traded exchange operators.
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.
“Magnus is an incorrigible optimist,” said Lynton Jones, who first worked with Bocker in 1992 at OMX AB’s London exchange and is now chairman of Bourse Consult, which advises on market structure. “The problem was always persuading some fairly provincial politicians to take a global view. That was always going to be a hard struggle.”
Stock exchanges around the world are merging to stay competitive. About $20 billion in proposed 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.
Net income is growing at Singapore Exchange at a compounded rate of 1.6 percent a year, compared with 5.7 percent at ASX, based on company reports and analyst estimates between 2007 and 2012 compiled by Bloomberg. Nasdaq OMX’s earnings are poised to fall 1 percent a year over that period, while NYSE Euronext (NYX)’s may rise 3.9 percent and CME Group Inc.’s climb 14 percent, the data show. Hong Kong Exchanges may post 5.4 percent growth.
“The Singapore exchange needs to grow, do something to improve their growth prospects,” said Instinet’s Crosthwait. “If they’re not allowed to do this with the Australian exchange, they will do something else. If they’re left on their own, they’ll have to figure out ways to expand their footprint solo. That’s the decision tree Bocker’s got.”
Winning in Asia proved harder for Bocker than in Europe, where he combined companies from Finland to Iceland to create Scandinavia’s biggest exchange in Stockholm-based OMX AB. New York-based Nasdaq, now pursuing an unsolicited offer for NYSE Euronext, acquired OMX in 2008.
Bocker succeeded Hsieh Fu Hua at the Singapore bourse in 2009. He is investing S$250 million ($198 million) in an order- processing system that may be the world’s fastest when it starts this year. His biggest initiative, the ASX takeover, foundered amid nationalism.
The recommendation from the Foreign Investment Review Board, part of Australia’s Treasury Department that advises its top executive, allows the Labor Party government of Prime Minister Julia Gillard to avoid 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 an interview from Tamworth. “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.”
The price-earnings ratio for Singapore Exchange’s stock dropped as much as 24 percent following the Australian bid amid investor concern about the proposed premium. The valuation sank to 25.6 times reported profit from the prior year on March 15 from 33.8 on Oct. 22. Their valuation has rebounded to 29.3, according to data compiled by Bloomberg.
NYSE, TMX Valuations
That compares with NYSE Euronext, which trades for 18.6 times reported earnings, TIMX Group at 14.6 and Hong Kong Exchanges at 38.7.
Singapore’s takeover was 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 Royal Dutch Shell Plc in 2001 to take control of Woodside Petroleum Ltd. A final ruling on the bourse takeover is expected within days, Bocker said in yesterday’s conference call.
“Maybe both CEOs made a misjudgment,” said Niki Beattie, CEO of Market Structure Partners Ltd., a consulting firm in London that advises brokers and exchanges. She’s a former managing director at Bank of America Corp. and Merrill Lynch & Co. who focused on exchange and securities regulation. “People have to work very, very hard in the background to persuade others the deal is a good thing before it’s announced. It doesn’t seem like they did enough.”