October 27, 2010 / 10:02 PM / 9 years ago

RPT-Q+A-Singapore Exchange bid for ASX faces nationalistic snags

(Repeats story first published Oct 27)

By Sonali Paul and Rob Taylor

MELBOURNE/CANBERRA, Oct 27 (Reuters) - Australia’s politicians and Singapore Exchange’s (SGXL.SI) shareholders are the biggest threats to a $7.9 billion takeover of bourse operator ASX (ASX.AX) by SGX over the next five months.

Those risks have kept ASX’s shares 20 percent below the offer value and knocked SGX’s shares down 7 percent since the bid was announced on Monday.

Here is what to expect:


Australia’s Foreign Investment Review Board (FIRB) has to decide whether the bid is against the national interest. It sends its recommendation to Treasurer Wayne Swan for a final decision.

Separately, ASX has a 15 percent shareholding cap which must be lifted by the government for the deal to go ahead. The treasurer first must decide whether to lift that cap. If he supports lifting the cap, he must send the regulation to parliament. If no one opposes the move, then the regulation is automatically cleared after 15 sitting days. If anyone opposes lifting the cap, parliament’s House of Representatives and Senate must vote on it.

Shareholders in both companies also have to approve the deal.


FIRB has 30 days from when SGX files its application, but the deadline can be extended.

Treasurer Swan is likely to wait for FIRB’s recommendation before deciding whether to lift the 15 percent shareholder cap on ASX. Even if FIRB rules 30 days from now, parliament will have adjourned for the year, pushing any decision out to February. Parliament’s calendar is full in February, therefore any move in parliament is unlikely before March.

SGX shareholders are expected to vote in March ahead of ASX shareholders in late March, according to a timetable in the merger implementation agreement.

Final court approval would come in April 2011, or as soon as possible after all regulatory conditions are satisfied.


FIRB is unlikely to reject the deal, but could recommend imposing conditions to ensure that ASX remains under Australian oversight, lawyers in Australia said.

It would look closely at SGX’s 23 percent stakeholder, Singapore’s Financial Development Fund, which is controlled by the city-state’s central bank, and would assess whether ASX is a unique asset that should stay in Australian hands.

The Singapore government’s stake in SGX has raised alarm among Australian politicians, but the shareholding is a non-voting stake, by law. “The fact that there’s lack of voting control would be of great comfort,” said a Canberra-based lawyer at a firm that is not advising on the deal.

Plans for the merged group to keep ASX’s and SGX’s clearing houses separate, operate the exchanges separately with the ASX brand intact, and for Australian authorities to continue to regulate ASX should also help ease any FIRB concerns.

The kinds of conditions FIRB could recommend would include appointing a specific number of Australian directors to the board and more Australians as senior executives in the merged group.


Treasurer Swan does not have to abide by a recommendation from the secretive FIRB, but is unlikely to go against it, lawyers said. But Swan alone will determine what is in the national interest and may have an eye to political implications in the hung parliament apart from the business case that FIRB will consider.

The only time an FIRB recommendation has been overruled by a Treasurer was when the previous conservative government in 2001 rejected a takeover of Australia’s biggest independent oil and gas producer Woodside Petroleum (WPL.AX) by Royal Dutch Shell (RDSa.L). “That was an election year,” said a Canberra-based lawyer who did not want to be named, highlighting sensitivities around the deal. Next year, when the issue is likely to come before parliament, is not a scheduled election year, possibly taking some of the heat out of the issue for the treasurer.


A cloud hangs over the deal in Australia’s parliament, where a minority Labor government is relying on support from a handful of Green and independent lawmakers. The Greens and at least one independent are hostile to the deal, with one calling it “lunacy on a grand scale”. Most of the concerns centre on foreign control of the Australian exchange, although the Greens also question Singapore’s commitment to democracy and free speech [ID:nSGE69O0MV].

If the Treasurer decides the deal does not damage national interests and agrees to lift the 15 percent shareholder cap, ruling Labor should in theory be able to clear any parliamentary hurdles with conservative opposition support. That assumes the opposition — usually pro-business — did not stand in the way of the merger. But the opposition could fuel nationalist sentiment on the deal to turn a political blowtorch on the government, which continues to struggle in opinion polls.

Prime Minister Julia Gillard’s Labor and the conservatives both aim for Sydney to emerge as an Asia-Pacific financial centre, but will need persuading that a merged SGX-ASX would strengthen, rather than weaken, Australia’s ambitions.

The conservatives and the Greens combined would have the numbers to kill the deal.


ASX’s shareholders are likely to approve the deal. It would be hard for them to turn down the original 37 percent premium that SGX offered with that kind of growth unlikely to be attainable anytime soon if it stands alone.

That premium is now down to 24 percent after share moves this week, but is still seen as big enough to deter rival bidders.

On the flip side, SGX’s shareholders are unhappy and could kill the deal easily. The transaction needs a simple majority of shares voted in favour of the deal.

Given that the Singapore government’s stake is non-voting, that means the deal could fail if just 39 percent of shares oppose the takeover.

An analyst who has spoken to several institutional shareholders in Asia and Europe said not one was happy with the deal and some questioned the strategic rationale.

The Tokyo Stock Exchange (TSE) [TSE.UL], which owns 5 percent of SGX, has not decided how it will vote, a TSE spokesman said, adding it is waiting for SGX to explain the merits of the merger before deciding. (Additional reporting by Saeed Azhar in SINGAPORE and Timothy Kelly in TOKYO; Editing by Muralikumar Anantharaman)

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