Australia’s Treasurer Wayne Swan said he would not be influenced by politics in deciding whether to back a $7.5 billion bid by Singapore Exchange (SGXL.SI) for rival ASX Ltd (ASX.AX), as expectations grow that lawmakers will block the proposed deal.
ASX shares fell 2.5 percent on Monday after media reports that the government was set to reject the merger in the face of widespread political hostility to the deal which is currently under review by the Foreign Investment Review Board (FIRB).
“I have no idea where those reports come from. They are entirely speculation,” Swan said in an interview on Australian Broadcasting Corp radio. “My decision will be taken in the national interest and it will have nothing to do with those political considerations whatsoever.”
The reports could add pressure on the Singapore Exchange to further sweeten the terms of the deal, even though SGX CEO Magnus Bocker has said there will be no more concessions.
SGX’s bid for ASX, first announced in October, has already been under pressure from Australian politicians — whose approval is necessary to lift a 15 percent shareholder cap — as it was seen as ceding control over a key national institution and a de-facto monopoly. ASX’s shares were trading at $34.10 at 0306 GMT, about 20 percent below the value of the offer, reflecting investors’ doubts that the deal will go ahead. The shares are now trading below their value before SGX’s bid last October.
SGX shares on the other hand rose nearly 3 percent, in a broader market up 1 percent, on expectations the deal may fall through.
“I think the deal is positive for SGX in the long term due to the synergies that can arise, but a majority of market players feel that if the deal doesn’t go through then that’s better, partly because of the pricing (of the deal),” said Seng Choon Leng, head of research at DMG & Partners in Singapore.
A SGX spokeswoman said on Monday that a submission to the FIRB on March 11 about the proposed merger included new governance arrangements it had already unveiled.
“We will continue to work cooperatively with FIRB and all relevant regulatory agencies, and we stand ready to provide further information and materials as requested to facilitate the process,” she said.
Investors said it now looked likely the deal in its current form would fail, but consolidation was still inevitable.
The global finance industry is being transformed by a wave of mergers that includes a proposed tie-up between NYSE Euronext (NYX.N) and Deutsche Boerse (DB1Gn.DE).
“The reports out over the weekend were pretty adamant that an attitude of the deal being rejected has developed,” said Angus Gluskie, portfolio manager at White Funds Management which owns ASX shares.
“It is pretty important for them to get a deal up. It is important for any exchange to participate in this wave of global consolidation.”
Opposition comes despite the SGX bowing to political pressure and agreeing to give ASX an equal number of directors in a merged group. On Saturday, the Sydney Morning Herald quoted a senior government source as saying that if the FIRB does not stop the deal, the Treasury certainly would.
The deal faces several key hurdles: first it needs approval from the Treasurer after the FIRB comes up with a recommendation, then parliament has to agree to lifting a 15 percent shareholder cap in ASX, and finally, it needs approval from ASX and SGX shareholders.
Last week, key opposition politicians raised doubts about the deal, saying the Labor government had yet to prove why it would be in Australia’s interest and saying it would have won support if it had been structured as a merger of equals.
For a minority government that is holding power only with the support of Greens and independent politicians, it will be hard for Labor politicians to go out on a limb to support the deal if the opposition Coalition gives it a thumbs down.
The Australian Financial Review reported on Monday that the government was “just going through the motions” in reviewing the deal, but Treasurer Swan said that was not the case.
“The final decision maker here is the Treasurer. I will take my decision based on the evidence before me, based not only on the recommendations of the Foreign Investment Review Board but a thorough consideration of all of these issues in good time. I will do all that without any outside influences upon me whatsoever,” he said.
SGX Chief Executive Magnus Bocker said last month that there would be no further concessions on terms of the deal.
ASX, SGX, business leaders and market players say the deal should go ahead at a time when the world’s biggest exchanges are in talks to merge in order to build scale and cut costs in face of competition from new electronic trading platforms.