SYDNEY/SINGAPORE (Reuters) - Singapore Exchange (SGX) has agreed a $8.3 billion takeover of Australia’s ASX Ltd to create Asia’s fourth-largest stock exchange, aiming to cut costs and fight growing competition.
However, the first major consolidation of Asia-Pacific exchanges faces regulatory hurdles, including getting Australia’s parliament to lift a 15 percent ownership cap on the ASX and approval from the country’s Foreign Investment Review Board (FIRB).
“There’s quite a few regulatory hurdles for this, which is why the shares are trading below the notional value of the offer,” said Tom Elliott, a managing director at MM&E Capital.
“There’s FIRB and parliament has to actually approve it. You’ve got a strange parliament, you’ve got the rural independents. Nothing would surprise me. It just means this is going to take a while, so there’s that uncertainty.” Under a deal still being negotiated into the early hours of Monday morning, SGX offered a combination of A$22.00 in cash plus 3.473 of its own shares per ASX share, valuing the Australian operator at A$8.4 billion ($8.3 billion) or A$48.00 a share — a 37 percent premium to their last trade on Friday.
The companies said they hope to close the deal in the second quarter of next year.
The deal, code-named “Avatar” by SGX’s bankers according to one source close to the deal, followed years of informal talks between the two exchanges and other operators on potential tie-ups.
The companies said it will save them $30 million a year in costs and make them more competitive as they face growing pressure from alternative trading platforms.
SGX-ASX will oversee a market worth about $1.9 trillion, ranking it fourth behind Tokyo, Hong Kong and Shanghai among Asian bourses, according to the World Federation of Exchanges.
ASX chief executive Robert Elstone, who was due to step down in 2011, admitted there was a lot of hard work ahead clearing the deal with regulators.
“Magnus, I have not had a lot of sleep over the weekend. This is beginning of what is probably 5 to 6 months of hard slog,” Elstone said to SGX chief Magnus Bocker at a joint press conference in Sydney.
Bocker is set to become chief executive of the combined group. ASX chairman David Gonski will remain on as deputy chairman of the combined group. He serves on the board of Singapore Airlines whose chief executive Chew Choon Seng will take over as SGX chairman in January.
The deal comes just 10 months after Bocker, former head of NASDAQ OMX, took over the job as CEO of SGX.
In this time, he has also launched trading of American Depositary Receipts of Asian firms and set up Chi-East, a “dark pool” joint venture with Nomura’s Chi-X.