SGX/ASX: Asia’s mega stock market deal is getting the thumbs-down for two reasons. Australia’s ASX is falling because investors fear regulators may kill the takeover, depriving them of a premium. Meanwhile, Singapore Exchange is down because investors don’t like the deal but still fear it might happen.
ASX ended on Tuesday 15 per cent below the value of the offer. That seems a reasonable reflection of the increasing hurdles SGX's bid will have to jump, as nationalistic objections surface to a local treasure falling into foreign hands. Not only is there noise from various opposition parties - the Greens and the conservatives, there are multiple arms of government that will have a say, not least Treasurer Wayne Swan and Australia’s Foreign Investment Review Board (FIRB).
The puzzle, though, is why SGX’s stock also fell on Tuesday. True, the Singapore group's investors may not like the deal. But if the merger is less likely to go through, surely the acquirer's stock should rise? Well, yes and no. Two things seem to be happening simultaneously. Investors think the deal is less likely to happen; but they are also becoming more negative on the deal if it were to proceed.
One way of seeing this is to look at the combined market capitalisations of the two firms. By close of play on October 25, the day the bid was announced, this was $778 million more than their joint value on October 22. But by October 26, this had shrunk to just $70 million. ASX’s gains had almost entirely been wiped out by SGX’s losses. That’s not so surprising given the paltry $30 million a year of cost savings boasted by the companies. But Magnus Bocker, SGX’s CEO, certainly has a big job to persuade both regulators and his shareholders of the merits of his deal.
