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The Singapore Exchange is buying
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. "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.
Shares in ASX spiked as much as 25 percent to A$43.89 after it resumed trade, still well short of a record high of A$61 in early 2008. They closed at A$41.75, 13 percent below the value of the offer price.
SGX shares fell as much as 6.7 percent and last traded down 4.6 percent at S$9.10.
HARD SLOG AHEAD
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
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
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.
Some analysts said they expected
"While this (deal) is bound to be sensitive as the ASX and financial services are important for the government and important for the economy, I don't see it as being as sensitive as some other matters that FIRB has considered in recent years," said Ian Ramsay, a law professor at the
The ASX is due to lose its effective domestic monopoly next year, with a new entrant,
A combined SGX-ASX,
Citigroup analyst Robert Kong said the deal would be seen as a defensive move, with both companies facing limited domestic growth opportunities.
It values ASX at about 23.5 times estimated 2011 earnings, versus SGX's 26.5 times and HKEx at around 32 times, according to Thomson Reuters data.
Shares in HKEx, home of the world's hottest IPO market, rose 5 percent, outperforming the Hang Seng's .HSI 0.5 percent rise.
"Investors may feel more comfortable to make a bet on the stock as the merger does not seem to has any threat to the leading position of the
London Stock Exchange also rose, up 4.1 percent, while Deutsche Boerse added 1.8 percent.
BIG DEAL FOR
The deal would be the second-biggest overseas takeover by a Singapore-listed company after Singapore Telecommunications bought
It is a sign of how
SGX said it had secured an 18-month bridging loan to finance the deal and would not be raising equity ahead of the purchase.
UBS is acting as financial adviser for ASX. Morgan Stanley is acting as financial adviser for SGX.