Asx Bids $2.3b For Sfe - And Gets A Yes

Sydney Morning Herald

Tuesday March 28, 2006

Michael Evans

THE wave of global financial market consolidation has hit Australia.

The Australian Stock Exchange has offered $2.3 billion for the Sydney Futures Exchange in a deal it argues is "in the national interest", with the combined $5 billion business having better chance of being dealt into any regional rationalisation game.

Seven years after the competition regulator thwarted the ASX and SFE's nuptials, the new deal immediately attracted investor criticism for its hefty price tag - with the SFE's multiple outstripping the Nasdaq's offer for the London Stock Exchange.

But the ASX stressed the strategic benefits, including becoming the world's ninth biggest exchange and a top 50 Australian company, combining a full range of equity and derivative trading as well as a settlement house.

The SFE board recommended the deal.

ASX chairman Maurice Newman said: "For the past seven years we've been aware of the attraction of the SFE but the stars weren't aligned."

ASX managing director Tony D'Aloisio said: "For the ASX this is a strategic acquisition and the longer term strengthening of our business will outweigh the short time needed to become [earnings] positive for ASX shareholders."

Shareholders won't see benefits until 2008 when between $14 million and $18 million in as yet unidentified benefits emerge. The ASX expects some job losses and the SFE name will be phased out.

ASX will pay 0.51 of a share for each SFE share, valuing SFE at $16.93 - a 25 per cent premium to its share price between March 10 and March 21, when talks were held.

SFE shares soared 27 per cent to $17.95 and ASX shares rose 8 per cent to $35.20 on the news.

ASX offered an alternate $2.58 cash payout per SFE share plus a reduced scrip offer. The ASX will also return $100 million to its shareholders.

The ACCC will investigate the union, having rejected it in 1999. Its preliminary view this time is the deal "does not appear" to raise concerns.

In 1999, the ACCC said it had "significant concerns" a deal would "be likely to halt competition" and result in "a monopoly in exchange trading".

The ASX will argue national interest in a submission to the Treasurer.

Mr Newman said: "If you look at what's been going on internationally ... it's quite clear there is a consolidation taking place."

Mr D'Aloisio said: "What you've had over the last seven years has been fairly clear evidence that each exchange operates in a certain market and doesn't really pose any restraint on the other in terms of equity or in terms of derivatives."

Morgan Stanley analyst David Humphries questioned why the ASX paid 29.7 times 2006 earnings - more than Nasdaq's bid for the LSE at 27 times.

Geoff Wilson from Wilson Asset Management said: "SFE shareholders are getting the better deal."

© 2006 Sydney Morning Herald

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