Apr 19, 2011
commentary
Failed merger bid gives SGX chance to look at other possible tie-ups
By Goh Eng Yeow
AUSTRALIA has faced a hammering from its own investment community for killing a proposed marriage between the Singapore Exchange (SGX) and its Australian counterpart, ASX, which would have turned them into a global force to be reckoned with.
Yet, barely observed beneath the din condemning Australia for its decision which jeopardises its reputation as a country welcoming of foreign investments, is the jubilation of some local investors, with research houses like OCBC Securities and CIMB raising their price targets for SGX.
As one blogger, a former financial journalist who calls herself Auntie Lucia, put it: 'Enough time has been wasted already pursuing a nightmare.'
In her view, SGX's boss Magnus Bocker should get down to doing the real work of running the SGX and not waste any more time trying to replicate his previous successes at the Swedish exchange OMX where he masterminded a series of take- overs. Her greatest fear is that 'those who call the shots at SGX may decide to lead it into another costly, pointless and time-wasting dance leading to yet another cul de sac'.
And it would seem that Mr Bocker is in agreement, telling reporters in the aftermath of the failed takeover that SGX's 'primary focus' had always been on organic growth.
But that statement flies in the face of the rapidly changing international financial landscape, where the mating season for global stock exchanges has heated up further since SGX made an A$8.4 billion (S$11.1 billion) bid on the ASX last October.
In the last two months, the Deutsche Borse has announced a trans-Atlantic merger with the NYSE Euronext to create the world's biggest stock exchange, while the venerable London Stock Exchange said it was tying the knot with the Toronto Stock Exchange.
If the SGX chooses to stay celibate after its costly failure to mate with the ASX, it runs the risk of having its competitive position eroded, as mammoth exchanges exude a greater appeal to attract listing aspirants.
And if this is not enough to shake its resolve to stay single, there is the challenge posed by fresh competitors like 'dark pool operators' which try to lure business away from stock exchanges by offering fund managers alternative trading platforms.
So, the costs of failure may well be an emasculated SGX trying to fight a rear-guard action to protect whatever market share it enjoys, while bigger and more powerful rivals encircle it and try to eat its lunch.
In turn, this may dent Singapore's ambition to play on the global leagues with the likes of London and New York, as it jostles with Hong Kong, Mumbai, Shanghai and Tokyo for top spot in Asia.
So what is the SGX to do?
Put aside the political rhetoric and it is plain that Australia was not ready for the kind of transformational merger as envisaged by Mr Bocker.
Given the considerable time and effort - not to mention millions of dollars - already spent, one alternative for the SGX is to take a 15 per cent stake in the ASX first and then mount a full takeover, when Canberra makes the regulatory changes.
But as veteran investor Denis Distant observes, rather than flog a half-dead horse, the SGX should let the failed bid become history and look for another bourse to merge with.
Market watchers recall that in the same week the ASX-SGX deal made news last October, Nasdaq OMX chief executive Robert Greifeld was in town to ink an agreement with Mr Bocker to allow SGX-listed firms to cross-list on the technology heavy New York-based stock exchange.
So it is conceivable that the two men may get together again to do a deal together to marry their two exchanges. As Mr Bocker was also a former Nasdaq top executive, he would be in an enviable position to make any tie-up a win-win combination.
It makes sense too. An SGX-Nasdaq-OMX tie-up would create the world's first round-the-clock share trading platform and give investors the ability to trade across three major stock exchanges straddling three time zones.
As Nasdaq has a market value of $5.6 billion, the SGX would find it considerably cheaper to swallow than the ASX would have been. The result would be a world-class bourse hosting about 4,000 listed companies worth $6.9 trillion.
Similarly, there have been suggestions for a possible link-up between the SGX and the planned London-Toronto merger. This would fulfil Mr Bocker's goal of creating one of the world's largest commodities stock exchanges with exposure to over 4,500 companies, worth a staggering $8.2 trillion.
Better still, the combined market value of the London and Toronto exchanges works out to only $8.6 billion - or less than the $11.1 billion which the SGX was willing to fork out for the ASX.
So if the SGX plays its cards right, it might even be able to grab two exchanges for less than the price that it was willing to pay for the ASX.
One wild card in such a deal would be Mr Thomas Kloet, the designated president of the merged London-Toronto exchange. He was the first chief executive of SGX when it was formed from the old SES and Simex exchanges here, so it is likely that he would have a better understanding of the hurdles that may be involved in such unions.
But the memories of his time at SGX may not be sweet, and his position at the head of the proposed London-Toronto entity could prove an obstacle to merger with SGX.
A tie-up with Nasdaq or a mega three-way deal between Singapore, London and Toronto may seem like wishful thinking to some now.
But there is no reason why it should not materialise, given the rapid manner in which huge bourses are getting into bed with each other.
For the SGX, Australia's rejection of its marriage proposal may yet turn out to be a blessing in disguise.
engyeow@sph.com.sg
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