The ASX & SGX: Imagine if the proposed $8.4bn merger had actually gone ahead

Remember when the Singapore Exchange (SGX) made a A$8.4bn bid for the ASX? It was over a decade now, but we thought we would look back at the bid and reflect on how things might have turned out had the deal gone ahead.

What is the SGX?

The Singapore Exchange (SGX) is one of the leading stock exchanges in Asia. The SGX is similar to the ASX in size (with a total capitalisation of around S$1tn and having an individual company market cap of S$10bn).

Also similar between the exchanges is that the entities today are mergers from other previous entities that existed but decided the financial market was better off with them together. It differs from the ASX in having a lack of resources stocks and being heavily skewed towards REITs.

Why did it try to buy the ASX

SGX’s attempt to acquire ASX back in 2010 was driven by various factors. Firstly, it would have allowed SGX to expand its reach and tap into new markets. By acquiring the ASX, SGX would have gained access to a larger pool of investors, including institutional investors and hedge funds based in Australia. Australia’s superannuation system means the pool of funds is ridiculously large for a population of just 25m. This would have increased trading volume on the exchange and potentially boosted SGX’s revenues.

Furthermore, the acquisition would have inevitably given SGX a leg up, putting it in the same category as larger exchanges in the Asia-Pacific, such as Hong Kong Exchanges and Clearing (HKEX) and Tokyo Stock Exchange (TSE).

Challenges as well

Despite its strategic benefits, the acquisition faced several challenges. Firstly, the Australian government had strict regulations on foreign ownership of stock exchanges, and the proposed deal required approval from various regulatory bodies in Australia. This raised concerns about potential control and influence of a foreign exchange over Australia’s financial markets.

Indeed, the Australian government blocked the deal in April 2011. Then Treasurer Wayne Swan argued the deal would have diminished Australia’s economic and regulatory sovereignty, presented material risks and supervisory issues due to the ASX’s dominance over clearing and settlement. This was the first time a government personally intervened on national interest grounds since the Howard government halted Royal Dutch Shell’s bid for Woodside in 2001.

HKEX also made a takeover bid for ASX, which raised concerns about potential competition between the two exchanges. This led to further scrutiny of the proposed deal and ultimately resulted in its rejection by the Australian government.

Secondly, the proposed deal faced strong opposition from various market participants in Australia, including stockbrokers and other financial institutions. They were concerned about potential conflicts of interest and the impact on competition in the market. Additionally, there were concerns about job losses and relocation of ASX’s headquarters to Singapore. An exchange trying to buy another is not without precedent. The Hong Kong Exchange made a bid for the London Exchange in 2019 but this was ultimately rejected.

What if it had been bought

In our view, the SGX would’ve been big winners because their exchange would have rivalled others in the region. ASX shareholders would have been happy to walk away with sweet cash money.

But for the ASX as an organisation – we’re not so sure. Yes, there may’ve been more funds invested in companies, but there is significant competition in the Asia-Pacific with several asset classes available. And even though we’ll never know, we are inclined to agree with sentiment about potential conflicts of interest.

We have some sympathy to arguments that it would’ve created a new pool of capital. But keep in mind the fact that there’s so much competition for investment dollars in the region. Still, we can’t help but wonder what decisions the SGX would’ve taken had it gotten the keys to 20 Bridge Street.

Bottom line

The attempted acquisition of ASX by SGX was one of the biggest ‘what if’ moments in Australian corporate history. While the deal did not go through, it opened up discussions and debates about foreign ownership of critical financial infrastructure and competition in the stock exchange market.

It even serves as a lesson for individually listed companies looking to expand their reach through mergers and acquisitions, emphasizing the importance of considering regulatory approvals and addressing concerns from various stakeholders in such deals.

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