Singapore Exchange's ASX buy may collapse

Singapore Exchange Ltd (SGX)’s A$7.6 billion ($7.9 billion) bid for bourse operator ASX Ltd (ASX) is on the brink of collapse after Australia said the takeover was not in the national interest.

Australian Treasurer Wayne Swan said the Foreign Investment Review Board advised him against Singapore Exchange’s bid, and that he had “serious concerns” about the proposal. Chief Executive Magnus Bocker said the Singapore bourse isn’t considering changes to the bid structure.

“Subject to further consideration, I intended to accept the unanimous Foreign Investment Review Board (Firb) advice that the takeover would not be in the national interest,” Swan said in a statement. “I am still open to further representations or information from the parties before coming to a final decision.”

Singapore Exchange offered to buy ASX on October 25 in a cash and share deal then valued at A$8.4 billion, a 42 per cent premium to ASX’s share price. The bid was opposed by several Australian parliamentarians. Pressure on rival exchanges to expand increased in February when Europe’s Deutsche Boerse AG (DB1) and NYSE Euronext (NYX) agreed to merge, and after London Stock Exchange Group said it would buy Canada’s TMX Group (X)

It is the first proposed foreign merger to be opposed on national interest grounds in Australia since former treasurer Peter Costello blocked a $3.2 billion bid by Royal Dutch Shell in 2001 to take control of Woodside Petroleum Ltd. A final ruling on the bourse takeover is expected within days, said Singapore Exchange’s Bocker.

ASX shares dropped 3.3 per cent after the announcement today, while Singapore Exchange’s shares jumped as much as 6.5 per cent.

“I don’t think SGX or ASX will sit where they are and accept it,” said Angus Gluskie, who helps manage $350 million at White Funds Management Pty in Sydney. “It’s one thing for the government to say it’s not in the national interest, but they’ve got to look at it from the company’s position where they are saying it’s a practical necessity for them to continue operating in a competitive manner.”

Singapore Exchange offered on February 15 to give more board seats to Australians in a concession aimed at overcoming opposition from lawmakers in Canberra to the deal, which won approval from Australia’s competition regulator on December 15. The Singapore bourse today said it would continue to pursue organic and other strategic growth opportunities, including further talks with ASX on other forms of cooperation. ASX spokesman Matthew Gibbs said in an e-mail to Bloomberg News today that his company would keep looking at merger opportunities.

“Bearing in mind that FIRB have communicated with SGX, not ASX, our position is that we continue to believe in the importance of participating in exchange consolidation, and we will continue to look at opportunities there, including further dialogue with SGX,” Gibbs said.

“The compelling business logic is for fewer platforms around the world,” said Shaun Manuell, who helps manage A$750 million in Australian stocks at Equity Trustees in Melbourne. “ASX is going to have to sit down with the government and have a clear understanding of the basis by which they would allow global M&A activity to occur.”

Singapore Exchange’s bid valued ASX at 19.5 times earnings before interest and taxes, almost twice as much as the 10.4 times involved in London Stock Exchange Group bid for TMX Group, data compiled by Bloomberg show.