The US$8.4bn takeover offer is just that - a takeover, not a merger or tie-up - and while it would richly reward shareholders in the ASX, it is far from being a done deal
When national interest conflicts with global ambition, there are bound to be fireworks. The Singapore Exchange's proposed takeover of the Australian Stock Exchange (ASX) is no exception.
Since the US$8.4 billion (Dh30.85bn) bid was announced in October, there has been no let up in punditry over the consequences of the national bourse falling into foreign hands.
This is not a merger or a "tie-up" between bourses, which has been common in the past few years between European and US exchanges. This is a takeover, pure and simple, and a very sweet one for those holding ASX shares. Singapore is offering $48 a share - a 20 per cent premium on the current value of the ASX. The combined entity would be worth more than $14bn and would retain listings in Singapore and Australia.
The ASX badly wants the deal and, to counter fears, has been resorting to spin. Think of the synergies and the access to Asia, it argues. This is not a takeover but a "business combination", it enthuses.
Shares in the ASX have not been driven up as might be expected, because this is by no means a done deal. Singapore now has the consent of the Australian Competition and Consumer Commission but needs the go-ahead from the Foreign Investment Review Board, the Reserve Bank of Australia, and the chief regulator, the Australian Securities and Investments Commission. Even if it gets all these, the deal has to clear parliament, which will have to change laws that currently forbid a foreign entity from owning more than 15 per cent of the exchange.
The last hurdle will be the toughest. Singapore and the ASX will have to reassure those who believe that the ASX is selling off a national institution to the highest bidder.
The Australian Green Party - which holds the balance of power when passing legislation - says it "will not be facilitating or supporting this takeover".
Even the opposition conservatives have said the offer is "of great concern". The independent lawmaker Bob Katter, a deeply conservative voice whose views are said to represent middle Australia, calls the proposal "lunacy".
What is obvious is that to Singapore, price doesn't matter so much as control. While offering such a premium, the Singapore Exchange is going to have to get its money back somehow. It's half the size of the ASX and paying way above the odds. To claw back the cost of acquisition, listing rules may need to change and compliance could become more expensive, especially if companies have to pay listing fees on both exchanges.
Proponents point to the advantages of greater liquidity as the number of buyers and sellers is multiplied by the "combination". Then there's the easy access to all important Asian capital and the corporate synergies that can be forged in the mix. But while a bigger equities pool is one thing, how much will investors pay to swim in it?
The deal is also in both parties' interests. Singapore needs to strengthen its expertise in financial services while Australian institutional investors need a larger investment universe.
Australia now has a superannuation pool of about US$1 trillion, which is expected to grow to $5tn by 2030. Asset allocation is heavily skewed towards the biggest local companies, and comparatively little is invested in local bonds.
The more paranoid are suggesting that the global financial marketplace is on the verge of an Asian takeover of western financial interests. Asian governments are sitting on hundreds of billions of reserves and Asian companies are hoarding cash. The resultant shopping spree will shake up the global power balance as rarely before.
More likely, Singapore just needs scale to compete with Hong Kong, which is already said to be flirting with a Japanese exchange tie-up.
Either way, the real issue is ambition. Singapore is clearly prepared to spend big to get the economies of scale that it does not possess locally. There may be more of this dynamic in Asia - and who's to say it will simply be about controlling exchanges? One thing is for sure, the West needs to be prepared for a merger and acquisitions spree from hitherto unlikely quarters.
