ASX shares fall as SGX deal under scrutiny

By Rob Taylor

CANBERRA (BestGrowthStock) – Australia’s minority government promised exhaustive scrutiny of Singapore Exchange’s agreed $7.9 billion takeover of Australia’s ASX Ltd, after politicians voiced concern over the deal, sending shares in both companies lower.

Australia’s Greens Party, an influential bloc in the upper house Senate, said on Tuesday it had strong concerns about the agreement to create Asia’s fourth-largest stock exchange, while the main conservative opposition also raised questions.

“We don’t see an advantage for this nation in having that stock exchange controlled from Singapore,” Greens leader Bob Brown told reporters.

Opposition politicians are concerned the deal could hurt Australia’s push to become a major regional financial center, as Singapore is the main competitor.

Political backing for the takeover in Canberra is crucial as Australia’s parliament needs to lift ASX’s 15 percent cap on any single shareholder for the deal to go through, in what lawyers said would be the first takeover to go before parliament.

ASX shares ended down 7.4 percent at A$38.67, 15 percent below the value of SGX’s offer. SGX was down 1.8 percent.

“The bigger the company and the stronger its position in the market, the harder it is,” said Don Williams, chief investment officer at Platypus Asset Management.

“It’s hard to call it one way or the other, but the market seems to be adjusting the probabilities, that’s for sure.”

A key benefit highlighted by ASX and SGX officials on Monday was that the merger would give Australian resources companies a bigger market to tap for much needed capital.

For SGX, the merger would create a larger platform for attracting new resource company listings, giving it a stronger footing to compete against Hong Kong Exchanges and Clearing Ltd, which has lured several resource companies to list.

Magnus Bocker, the 49-year-old Swede Chief Executive of SGX, is set to become CEO of the combined group. Treasurer Wayne Swan said the Foreign Investment Review Board (FIRB) would consider the Singapore Exchange’s plan, and take advice from the independent central bank and nearly the full suite of the country’s corporate regulators.

“The government always has and always will take these decisions in Australia’s national interest,” Swan told parliament after a stream of political criticism sent ASX shares down as much as 8.6 percent on Tuesday after Monday’s 19.4 percent rise.

SGX has 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$8.0 billion ($7.9 billion) on Tuesday’s trade.

The duo hope to close the deal, aimed at cutting costs and fighting growing competition, in the second quarter of next year.

Neither company expects the same level of outrage against the merger as when Australia flag carrier airline Qantas encountered when it welcomed a takeover offer from private equity firms, a person close to the deal said.

POLITICAL NOISE

Although opposition by the Greens was a setback, the ruling Labor and conservatives have enough votes to remove the shareholder cap and allow the deal to proceed in a parliament split near evenly since dead heat August 21 elections.

But the conservatives also expressed concern about the deal, stopping short of outright rejection. In 2001, while in power, the opposition did not oppose SingTel’s takeover of Australia’s second-largest telecoms firm Optus.

“The ASX is effectively a monopoly and therefore as a monopoly, is it in our national interest to have not only a foreign exchange owner, but a foreign exchange with a substantial shareholding from its own government?” conservative Treasury Spokesman Joe Hockey told Australian radio.

A columnist in the Australian Financial Review newspaper said only xenophobia “just below the surface in Australia” was standing in the way of a deal introducing to Asia a wave of consolidations that began in the United States and Europe.

Swan said the ASX was an important part of the financial system’s architecture and would want reassurance the tie-up with SGX would build on the government’s aim of turning Australia into an Asian financial services hub.

The two bourse operators will now need to embark on an intensive and difficult round of lobbying to persuade politicians, including the Greens and independents, that the merger will benefit Australia.

One of those independents, Bob Katter, who has previously called for reintroduction of trade and tariff barriers, called the deal “lunacy on a grand scale,” with the ASX to be subordinate to the Singapore exchange.

A bid for a holding of more than 15 percent in the ASX by a foreign entity would require Treasurer Wayne Swan’s approval under the Financial Acquisition and Takeovers Act following a screening process by Australia’s Foreign Investment Review Board.

The government has the power to block the proposal if it is determined to be contrary to the national interest, or to impose conditions.

If the Treasurer decides to waive the 15 percent shareholder cap, parliament has the power to block the proposal if anyone calls for a vote on his decision.

(Additional reporting by Michael Perry and Michael Smith in Sydney, Adrian Bathgate in Wellington and Saeed Azhar in Singapore; Editing by Balazs Koranyi and Anshuman Daga)

ASX shares fall as SGX deal under scrutiny