The Singapore Exchange Ltd. said Monday it is making a $8.3 billion cash and shares takeover offer for the operator of the Australian bourse, aiming to vault from second-tier stock market to leading Asian finance center.
The combined exchange company would be the world's fifth-largest by market value and rank as the second-largest stock market in Asia by number of listed companies, the two exchanges said in a joint statement. By other measures it would still rank behind Tokyo, Hong Kong and Shanghai.
The deal aims to give both exchanges a better chance of prospering amid increased competition within Asia and as cross-border trading platforms like Chi-X Europe usurp the dominance of established stock exchanges.
"They had to do a deal like this or run the risk of being marginalized," said Lorraine Tan, head of equity research with Standard & Poor's in Singapore. "China's listings are huge, and neither Singapore nor Australia has those kinds of hinterland listings you can rely on."
The Australian Securities Exchange Ltd., known as ASX, is set to lose its monopoly on operating a stock market in Australia in 2011 and an affiliate of Chi-X Europe is planning to set up a trading system once the monopoly is abolished. Singapore, meanwhile, has long lagged behind Hong Kong and Tokyo as a regional financial center.
"The capital flow we see today is really changing from West to East," Singapore Exchange chief executive Magnus Bocker said at a news conference. "This will be the gateway to Asian capital markets."
The exchange operating company formed from the takeover of ASX would have a market value of $12.3 billion and be responsible for some 2,700 listed companies.
According to September data from the World Federation of Exchanges, the combined exchange would list companies worth about $1.9 trillion, fourth most in Asia behind Tokyo, Hong Kong and Shanghai. Companies traded on the New York Stock Exchange have a total market capitalization of $12.3 trillion, the most in the world.
Combined trading volume of the Singaporean and Australian exchanges was worth about $1 trillion during the first nine months of the year, sixth-most in Asia and far behind global leader NYSE which has had volume worth $13.8 trillion in the January-to-September period.
The takeover offer of 48 Australian dollars ($47.11) per share is 37 percent higher than ASX's last traded price on Thursday — a day before its shares were halted from trading pending an announcement on the deal.
It comprises AU$22 cash plus 3.473 shares in the Singapore Exchange for each share in the Australian stock exchange operator.
ASX shares surged more than 20 percent when trading resumed after the announcement to AU$43.49. Shares in Singapore Exchange, also known as SGX, fell 4.6 percent to Singapore dollars 9.10 ($7.02).
Hong Kong, Singapore's regional rival as a financial hub, isn't currently looking for a partner for its stock exchange, K.C. Chan, the territory's secretary for financial services and the treasury.
"Every stock exchange needs to have its own strategy," Chan told reporters Monday. "If the Hong Kong stock exchange wanted a partner, I don't think it would have much difficulty finding one."
The companies hope to finalize the deal in the second quarter of 2011, but will need the approval of regulators in each country including Australia's Foreign Investment Review Board and Australian Treasurer Wayne Swan.
"I don't think we would have announced it if we didn't believe that the approvals would be forthcoming," ASX chief executive Robert Elstone said.
The chief of Australia's competition regulator said he did not see any potential problems with the proposed deal.
"I think it's a matter between the Singapore Exchange and the Australian exchange, and I can't see that raising competition issues for us," Graeme Samuel, chairman of the Australian Competition and Consumer Commission, told Australian Broadcasting Corp. radio.
"Of course we're much more focused on the potential for new competitors to enter into the Australian market in terms of stock exchange dealings," he said.
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