Asx Offers $2.3bn In A Bid To Shore Up Futures

The Age

Tuesday March 28, 2006

MICHAEL EVANS, SYDNEY

THE wave of global financial market consolidation has hit Australia. The Australian Stock Exchange Ltd has offered $2.3 billion to buy the Sydney Futures Exchange in a deal it argues is "in the national interest", with the combined $5 billion business having a better chance of a seat at the table should regional rationalisation pick up.

Seven years after the competition watchdog thwarted an ASX-SFE nuptial, the new deal immediately attracted investor criticism for its hefty price tag, with the SFE's multiple outstripping 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. Now we see the stars aligned."

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

Shareholders won't see benefits until 2008, when as yet unidentified benefits of $14 million to $18 million would emerge. The ASX expects some job losses. The SFE name will be phased out.

ASX has offered 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 shareholders.

The ACCC's preliminary view 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: "Events have moved on, 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 offered 29.7 times 2006 earnings - more than Nasdaq's bid for the LSE at 27 times.

Geoff Wilson, of Wilson Asset Management, said: "SFE shareholders are getting the better deal. In time, people will say it's a great deal but on today's arithmetic the SFE shareholders tend to be getting the better end of the deal."

© 2006 The Age

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