Singapore Stock Exchange (SGX) and Australia’s stock exchange operator, ASX Ltd, have agreed to a $8.4 billion merger to create the fifth-largest listed exchange in the world. SGX offered a combination of A$22.00 in cash plus 3.473 of its own shares for each ASX share – valued ASX shares at A$48.00 each, 37% premium to ASX’s last transaction price.
The merger however is pending approval from the Australian Securities and Investments Commission (ASIC), the Australian Foreign Investment Review Board (FIRB) and the Monetary Authority of Singapore. The newly merged entity, ASX-SGX Ltd, will have pro-forma revenues of about US$1.1 billion (A$1.12 billion) and earnings before interest and tax of about US$700 million (A$711.6 million).
Before the merger, SGX (valued at A$8 billion) and ASX (valued at A$6 billion) were Asia’s second and third largest listed bourses respectively. However SGX’s market is worth A$554 billion only compared to ASX’s A$1.34 trillion. SGX is 23% owned by the Financial Sector Development Fund, which is controlled by Singapore’s central bank. ASX’s biggest shareholders are Perpetual (4.98%) and National Australia Bank (3.1%).
In terms of total number of listings, the ASX-SGX Ltd will overtake Tokyo to become the second largest listing venue in the Asia-Pacific region after Bombay, offering more than 2,700 companies from over 20 countries including 200 from Greater China. The ASX is about to lose its long-held monopoly in Australia after the government gave the green light for rival share exchanges to set up, particularly Chi-X Global Inc. which is expected to enter the Australian market as early as first quarter 2011.
In a statement released by SGX, SGX Chief Executive Officer Magnus Böcker is to become CEO of the new entity, while ASX Chairman David Gonski would serve as deputy chairman. It was estimated the merger would save transaction-related cost of about A$30 million annually. But one of the biggest threats to other Asian exchanges is the competition from ASX-SGX in luring away huge fee-paying investors and high-frequency traders from Hong Kong or Tokyo.
Interestingly the merger deal was made when SGX was traded at 26 times its prospective earnings while ASX was only traded at 17 times. ASX once traded A$48 a share in Apr 2007 and above A$60 a share back in 2008. Some Australians are not happy that a tiny island of 5-million people (Singapore) would control ASX that has domestic base 5-times that of Singapore but eventually the shareholders and the authorities would be the one making the final decision.
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