failed merger of sgx and asx

7/28/2019 Failed Merger of SGX and ASX

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ContentsAbout ASX .......................................................................................................................................................... 2

About SGX ......................................................................................................................................................... 2

Story Unfolding:.................................................................................................................................................. 3

Why .................................................................................................................................................................... 4

Benefits of merger to both sides: ....................................................................................................................... 8Deal Structure: ................................................................................................................................................... 9

Approvals Required: ........................................................................................................................................ 10

Funding ............................................................................................................................................................ 10

Comments: ....................................................................................................................................................... 11

What Happened: .............................................................................................................................................. 12

Why it was blocked: ......................................................................................................................................... 12

Stock prices: ..................................................................................................................................................... 13

Twists and turns ............................................................................................................................................... 14

Trials ................................................................................................................................................................. 15Lobbying efforts................................................................................................................................................ 15

Possible effects of blocking the deal: .............................................................................................................. 16

Afterwards: ....................................................................................................................................................... 17

Reply to PQs on Proposed Merger of SGX and ASX ...................................................................................... 18

Code Name Avatar:Failed Merger of SGX andASX


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20 Min presentation. 15 min Q & A.Yeo, W.Y. Student Teaching Assignments, Experiments in Pedagogy: Selected Papers from ProfessionalDevelopment Programme (Teaching), May 2008, Volume Three, pages 99-103Research and teach15 pages, double space, Times New Roman, font 12 (including tables and charts but excluding appendices)Question: Put yourself in the shoes of the Professor and ask yourself, What would I want the class to learn?There too much information: selection of what is important is keyBear in mind the background of your classmates

Always ask yourself: What will create the most positive impact to the class?

April 08, 2011http://www.theaustralian.com.au/business/markets/sgx-and-asx-agree-to-terminate-merger-after-wayne-swan-blocks-move/story-e6frg916-1226035892602http://www.smh.com.au/business/how-the-asxsgx-merger-failed-20110421-1dqb2.html

He noted Australia is the world's 11th largest exchange by market value compared with Singapore, which islisted at 21.http://youtu.be/8q-cW0UBftU

About ASX

ASX is a multi-asset class, vertically integrated exchange group, and one of the worlds top -10 listedexchange groups measured by market capitalisation.

ASXs activities span primary and secondary market services, central counterparty risk transfer, andsecurities settlement for both the equities and fixed income markets. It functions as a market operator,clearing house and payments system facilitator. It monitors and enforces compliance with itsoperating rules, promotes standards of corporate governance among Australias listed companiesand helps to educate retail investors.

ASXs diverse domestic and international customer base includes issuers of securities and financial

products, investment and trading banks, fund managers, hedge funds, commodity trading advisers,brokers and proprietary traders, market data vendors and retail investors.

By providing its systems, processes and services reliably and fairly, ASX generates confidence in themarkets that depend on its infrastructure. This is integral to ASXs long -term commercial success.

For more information, please visit www.asx.com.au

About SGX

SGX is among the worlds largest exchanges and Asias second largest listed exchange. As the Asiangateway, SGX is the market of choice for investors wanting to participate in Asias vibrant and rapidly-growing

economies, and for Asian issuers seeking international capital.

SGX's extensive suite of securities, derivatives and commodities products makes it Asias most internationalexchange. SGX's services range from listings, trading, high-speed market access, clearing and settlement todepository services and Central Counter Party services for OTC traded derivatives.

With the region's longest trading hours, and powered by cutting-edge technology, SGX is the unparalleledconduit for investment flows into and out of Asia.

For more information, please visitwww.sgx.com
http://www.smh.com.au/business/how-the-asxsgx-merger-failed-20110421-1dqb2.htmlhttp://www.smh.com.au/business/how-the-asxsgx-merger-failed-20110421-1dqb2.htmlhttp://youtu.be/8q-cW0UBftUhttp://youtu.be/8q-cW0UBftUhttp://www.asx.com.au/http://www.sgx.com/http://www.sgx.com/http://www.sgx.com/http://www.sgx.com/http://www.asx.com.au/http://youtu.be/8q-cW0UBftUhttp://www.smh.com.au/business/how-the-asxsgx-merger-failed-20110421-1dqb2.html


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Story Unfolding:Treasurer Wayne Swan was in the South Korean coastal city of Gyeongju preparing for meetings with G20finance ministers when he heard the news. (The week of 18 th October)

An adviser had to pry the politician's attention from his mountain of summit paperwork to relay the story hittingthe news wires that Friday afternoon in October: the Singaporean and Australian stock exchanges were intakeover talks. Swan was stunned.

This was a large, politically-sensitive transaction involving the possible sale of Australia's stock exchange andno one had sounded out his office beforehand, a common practice given Australia's Treasurer has the power

to block deals involving foreign owners.

Swan, whose Singaporean counterpart Tharman Shanmugaratnam was also attending the G20 summit, knewfrom the beginning the deal was going to be a political headache.

It was just after lunchtime in Sydney that Friday when the Singapore Exchange and Australia's ASX Ltd bothwent into a trading halt pending an announcement about a "possible business combination".

The news sent traders rushing back to their offices and raised eyebrows in the Singapore market as the firstmedia reports surfaced that SGX was planning a full takeover of the Australian exchange.

While Swan was distracted that weekend talking to finance ministers in South Korea about global growthimbalances, SGX boss Magnus Bocker and his army of bankers and lawyers worked around the clock to

finalise the terms of the ambitious $8 billion takeover bid.

On Sunday, Bocker flew from Singapore to Sydney where the long battle to sell his stock exchangeconsolidation dream was about to kick into first gear.

The clearly excited SGX chief joined his Australian counterpart Richard Elstone on Monday morning to briefthe media and investors on the deal their bankers code-named "Avatar", presumably named after theHollywood movie about future humans invading an alien planet for its resources.

The duo wanted to create Asia's fourth-largest stock exchange through an $8 billion cash and shares offer forASX, which would cut costs and enable the combined group to tackle new competitors.

"Magnus and I have not had a lot of sleep over the weekend. This is the beginning of what is probably five tosix months of hard slog," Elstone told reporters gathered in the auditorium of ASX's headquarters that Mondaymorning.

This agreement is significant considering that previous merger attempts over the past decade between the twoexchanges have failed due to squabbles over where the combined group would be headquartered: Sydney orSingapore.

This time, consensus was reached: both exchanges will operate out of both Australia and Singapore, and theASX will maintain its Sydney headquarters and a local management team. Subject to regulatory approval, thecombined group will have an international board comprising 15 directors from five countries, including fourdirectors from the ASX. The four directors from ASX will be David Gonski, Russell Aboud, Jillian Broadbentand Alan Cameron, the current chairman of the board of directors of ASX Compliance.

Chew Choon Seng, currently the chairman-elect of SGX, is anticipated to become the non-executive chairmanof the combined group. David Gonski, currently the chairman of ASX, is anticipated to become deputychairman. Magnus Bcker, currently the CEO of SGX, will be CEO of the combined group.

The merged group would become the fifth largest securities exchange in the world by marketcapitalisation (approximately US$12.3 billion), the second largest listings venue in Asia, and thelargest provider of exchange-traded funds (ETFs), derivative products and real estateinvestment trusts (REITs) in Asia.

Since the Australian Parliament exists to promote and protect Australias national interest, the fact that the licensed Australian businesses of ASX-SGX only exist if the merged entity abides


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by the conditions of its Australian licences guarantees that the Australian Governmentcontinues to have ultimate sanction over the activities of ASX-SGX in Australia.Beyond this, the questions of national interest most relevant to the ASX-SGX proposal areeconomic in nature. The core question, as recognised by the Treasurer, is whether Australiaseconomic prosperity is promoted or adversely affected by the formation of ASX-SGX. Thisreport assesses the national interest implications of ASX-SGX under four headings.

Why

1.Dark Pools of Liquidity

Larger competition will come next year to Australia when Chi-X begins trading. Chi-X is owned by JapaneseNurmora Securities. This dark pool is a third party exchange owned an operated by a foreign company. If theactivity of dark pools in other markets is anything to go by, then Chi-X has the potential to take away up to60% of the total trading currently done on the SGX. The institutions trade on Chi-X, or in the dark pools forseveral, reasons.

2. China Threat

Companies will want to list in Shanghai rather than Australia, or Singapore, or Hong Kong. The ASEAN

exchanges are aware of this threat. An open China market will reduce the ASEAN exchanges to small playerssurviving on limited local capital.

This threat is larger than the threat posed by the dark pools. If the dark pools take away 60% of trading activityon the SGX, and opening China takes away another 30% of international investment capital that wouldotherwise come to Singapore, then we have a significant problem. This is not just problem for the SGX, it is aproblem for Singapore. Remember the Exchange is an essential mechanism for attracting and distributinginternational capital.


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The box in blue show the situation if no change takes place and the SGX and ASX remain separate. The sizeof each box represents the allocation of capital to each area. Light blue shows the allocation of global capital.

A small amount to each individual exchange, a larger amount to the dark pools and a very large amount to the

China market.The dark blue area shows the local flow of capital. This is a small amount to the local exchanges, and a largeamongst to the dark pools and slightly larger amount to China. As the local exchanges are starved of liquidity,companies have to chase international capital by listing on other exchanges. This accelerates the drift oftrading activity to China.The light green area shows what happens when the SGX/ASX merge. The flow of global capital is moreevenly balanced. There is still a leakage to the dark pools and China, but the loss is not as great. Theallocation of domestic capital also changes. The bulk of capital remains on the local combined exchange andthe dark pool. A slightly smaller amount mitigates to the China exchanges because there is enough liquidity inthe local combined SGX/ASX exchange to meet the requirements of most listed local companies. They do notneed to go overseas for capital.

The solution to these twin threats is size. This is one of the primary drivers behind the SGX/ASX proposal. In

time, at RedCliff Group, we believe this will lead to an essentially pan-Asean exchange via a range ofcooperative cross trading agreements which will allow capital to access what is effectively a single market.The dark polls are already effectively trading a single seamless market, so its up to regional Governments toco-operate or see liquidity sucked out of their exchanges and transferred to a combination of dark pools andthe Shanghai Exchange. The Shanghai Exchange will open to the first listing of foreign companies in 2011.The deliberate collapse of the US dollar and the stability of the Yuan will also this an increasingly attractiveproposition.

As private traders we do not need much liquidity to be able to trade because our orders are small. But we doneed the general market liquidity to create the environment where we can trade. We trade the edge of theocean and many opportunities are washed up on the shore. If this is reduced to a puddle, then the range ofopportunities vanish.

3. Australia as a regional financial hub

John Brogden (2010) in his recent article in The Australian entitled Funds Passport is Australianfinancial players key to Asia identifies the inefficiencies currently evident in cross-borderregulations particularly in reference to the financial services sectorwhich denies ourinvestment products access to our own region *Asia+ and vice versa. Australia has many attractive qualitiesas a market for financial services a skilled and mobileworkforce, political stability, and a sound legal and regulatory framework, plus one of theworlds largest pools of funds under management, a strong banking system and world-class exchange

infrastructure but these have not yet translated into significant cross-border

activity. Australias low level of exports and imports of financial services is just one indicator


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among many that demonstrate an overly domestic focus. Our ambitions to become a regional

financial services hub require stronger connections beyond Australias shores, most especially

into Asia.

4. Reduced cost of capital

Australias standard of living owes much to our ability to attract and effectively use foreign

savings. Access to overseas capital has helped foster higher rates of economic growth,

develop new industries and infrastructure, and strengthen trade and economic links with the

rest of the world. Indeed, a reliance on foreign capital has been a prominent long-term

feature of Australias economic development given the limited size of our own capital markets

and the dominance of capital-intensive industries, especially mining.

Key characteristics of Australias economic circumstances include:

a reliance on foreign funding that is likely to increase, and to be increasingly affected bydevelopments in China and India major importers of Australian resources; and

domination of foreign capital inflow by short-term bank debt, as Australias domesticbanks are the major source of debt capital for Australian corporates and individuals.

The availability and pricing of equity capital is facilitated by securities exchanges. Given that

issuers and market participants will gravitate over time to the exchange with the most capital

and the most cost-effective and speedy settlement and registration, Australia needs to be on

the right side of those trends.

Conceptually, the greater the size, liquidity, and reach of an exchange, the more cheaply it can

assemble capital from investors, and the better it can match the risk and reward preferences

of investors and companies. While the precise impacts of cross-border exchange mergers are

still unknown, a recent study by Nielsson (2009), which investigated the impact on market

liquidity of forming the Euronext exchange, noted that the main motivation for studying

liquidity is that it ultimately affects the cost of capital.

ASX-SGX has the potential to:

increase access to foreign capital; and lower the cost of capital through increased scale, liquidity and diversification.Given the dependence of Australias economic prosperity on continuing access to foreign

capital, any proposal that increases access to and reduces the cost of foreign capital to

Australia must be in the national interest.

5. Opportunities for diversification

ASX-SGX will create opportunities for Australian savers to diversify their asset holdings more

easily across Asian investments; and for Australian issuers to broaden their sources of capital

to include the rapidly growing pool of Asian savings. As Brogden (2010) notes:

Asias population is 4.2 billion (60% of the worlds population) and is expected to growby 17% by 2050.

Many Asian countries have established pension schemes to help fund the ageing of theirpopulations.

Asia will generate much of the worlds wealth over coming years. Consensus forecastsindicate that China and India will grow at double the rate of the rest of the world in the

five years to 2015.

However, at this stage, Asia has just 13% of the worlds funds under management (orabout $10 trillion based on 2007 figures for global funds under management (IFSL

2009)).

Both Australia and Singapore are internationally regarded as safe and strong financial centres.

Key complementary features of ASX and SGX include:


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Comparable vertically integrated business profiles (i.e. offering trading, clearing andsettlement services) plus strong legal rights and investor protection mechanisms.

ASX is dominated by financial stocks, especially banks, and listed mining companies.SGX, on the other hand, is dominated by industrial and materials companies, information and communications

technology (ICT) stocks, real estate investment trusts

(REITs) and financial stocks.

Bond trading is far more established on SGX than ASX, with the value of bond trading onSGX more than 15 times that on ASX in 2009 (WFE 2009).

ASX has a wider array of derivative products available to market participants comparedto SGX. However, SGX offers a suite of regional index futures contracts covering the

Chinese, Japanese and Indian markets, whereas ASX lists only one domestic stock index

futures contract (based on the S&P/ASX 200 index).

The complementary nature of the ASX-SGX transaction is evident in the chart below, which

compares the relative strengths of the two exchange groups. Clearly the exchanges are almost

perfectly matched in terms of their sectoral profiles. The merged group will have a more

balanced profile than either ASX or SGX separately, with flow-on implications for market risk.

6. Regulatory Control

In addition, there is no reason to be concerned about Singapores regulatory environment.

Independent international institutions (such as the World Bank, the IMF and the World

Economic Forum), which assess a broad sweep of institutional features bearing on financial

systems, rate both countries highly. Singapore and Australia are well matched with regard to

regulatory standards and investor protection.

The counterfactualASX should be allowed to respond to new competitors entering its markets.

In March 2010, the Australian Government announced its support for competition between

exchanges for trading in ASX-listed products in Australia. These developments have openedthe door for the foreign-owned operator, Chi-X, to enter the Australian exchange market.

Policy makers expect that competition in trading of ASX-listed stocks will lower transaction

costs and improve product and service innovation for users.

ASX will face increased domestic and international competition in any case even if ASX-SGX

does not proceed. ASIC is preparing Australias equity market regulatory framework to

encourage greater competition. Disallowing ASX-SGX would rule out a rational strategic

response on ASXs part to its changing market environment, changes facilitated by the

Australian regulatory authorities, which have oversight of ASXs compliance with its own

licence obligations.


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Furthermore, the current regulatory framework does not prohibit foreign ownership of ASX

and proposes no foreign ownership limitations on new market operators that will compete

against ASX. In contrast to the controlled way in which the ASX-SGX merger is currently

proposed, the ownership of ASX could transition to foreign investors over time and in a less

strategic fashion.

Finally, if ASX-SGX were disallowed, this could add to perceptions, especially in Asia, that

Australia is not welcoming of foreign investment and/or is overly protectionist.

ConclusionsThis report finds that the proposed formation of ASX-SGX is not contraryto

Australias national interest and, moreover, is consistentwith Australias national

interest since: (i) ASX-SGX will improve the economic welfare of Australians; and

(ii) the ASX will continue to operate in Australia and be regulated by Australian

authorities.

Moreover, SGX stands out as the most logical merger partnerfor ASX given that

(i) the bulk of future capital flows into Australian investment projects will come

from Asian savings (and investors); (ii) ASX and SGX are complementary, meaning

that there is not one dominant business in the proposed merged group; and that

(iii) ASX and SGX have similar business models, common technology, and

complementary sectoral representation.

Benefits of merger to both sides:

The proposed merger of the Australian Securities Exchange (ASX) and the Singapore Exchange (SGX)presents a great strategic fit in principle, but the process of implementing it will be a long haul, marketparticipants say.

With both the ASX and SGX powered by Nasdaq OMX's Genium INET trading technology, the merger of thetwo exchanges will create a single multi-asset platform with a single access point within Asia-Pacific, thuslowering trading costs and increasing technical efficiencies.

Potential synergies from the combination will lower transaction costs and provide ultra-low latency access forhigher-turnover strategies, thus competing well with the oncoming Chi-X Australia as well as creating a moresolid battlefront should the Hong Kong Exchange, with its backers in Beijing, decide to attempt to play a largerrole in the region, says Paul Rowady, senior analyst at TABB Group.

The deal is about competing to provide the most liquid portfolio of products in one of the most economicallyattractive regions in the world, he adds.

From a trading perspective, the ASX/SGX merger will be beneficial in terms of lower costs and easier accessto their markets. Laible says, Over time, as the technology platforms begin to merge into a single version, itwill be much easier from a trading perspective because you only have to write technical specifications to oneinterface and you get the benefit of two different exchanges. If you think about the order types that differentexchanges support, you'd hope that over time, all these things get unified. You would also hope that the back

office and clearing get unified, which would reduce fees.

The proposed SGX/ASX merger increases the size of the combined market. Although SGX has around 800listed companies compared to around 2000 in Australia, the SGX attracts a much higher flow of internationalcapital. International money flows into and out of Singapore with ease because of their taxation regime. Thereis no capital gains tax. The SGX clips every transaction. The revenue flow is substantial.

second largest listing venue in Asia Pacific with over 2,700 listed companies from over 20countries, including over 200 listings from Greater China; worlds second largest cluster of companies in the resource sector (more than 900 listings), the largest REITs sector (over 80 listings) and the largest number of ETFs (over 100) in AsiaPacific;


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worlds widest range of Asia Pacific equity, fixed income and commodity derivatives with over400 contracts from over 10 countries, including Australia, Greater China, India and Japan, andcovering a range of commodities including metals, energy and agricultural products; Asia Pacifics largest and the worlds second largest base of institutional investors withcombined assets under management of over US$2.3 trillion from existing superannuation,institutional and sovereign wealth funds; global distribution network with over 90 securities market participant firms and over 170derivatives market participant firms on a combined basis; and leading exchange technology, including the proposed introduction of the worlds fastest tradingplatform with the lowest trading latency, and flexible data and connectivity solutions.

The combined exchange group, ASX-SGX Limited, will have pro forma revenues of approximatelyUS$1.1 billion and pro forma earnings before interest and income tax of approximately US$700million, based on the audited financial statements of ASX and SGX, each for the financial yearended 30 June 2010 (FY2010).

While ASX and SGX currently achieve a high level of operational efficiency, pre-tax cost synergiesand other transaction-related cost savings - comprising IT and non-IT related savings - areestimated to be US$30 million annually based on existing cost structures.

The pro forma market capitalisation of the combined group was approximately US$12.3 billion1 asat 22 October 2010, creating the worlds fifth largest listed exchange group with a broad

international shareholder base.

Deal Structure:No of shares offered, BoD, CEO, location, etc

ASX and SGX have proposed forming a new holding company ASX-SGX Limited to be listed on both theSingaporean and Australian exchanges. The combined group will be the world's fifth largest exchange groupwith a combined market capitalisation of approximately US$12.3 billion and offering access to more than2,700 listed companies from 20-plus countries as well as a wide range of equity, fixed income and commodityderivatives. As well as the approval of both sets of shareholders, the deal is subject to regulatory approval bythe treasurer of the Commonwealth of Australia, the Australian Securities and Investments Commission andthe Monetary Authority of Singapore.

ASX-SGX Limited will be the holding company of the combined group and will be listed on both theSingaporean and Australian exchanges. SGX will submit an application to ASIC for the listing andquotation of SGX shares on ASX, as CHESS Depository Interests (CDIs), being units of beneficialownership in SGX shares.

The combined group will continue to operate out of Australia and Singapore and haveapproximately 1,100 employees. Centres of excellence will be created to leverage existing skill setsin both locations. This structure will create new international and cross border career opportunitiesfor employees within a larger group with enhanced organisational capabilities.

Subject to regulatory approval, the combined group will have an international board comprisingfifteen directors from five countries, including four directors drawn from ASX. The directors from

ASX will be David Gonski AC, Russell Aboud, Jillian Broadbent AO and Alan Cameron AM, thecurrent Chairman of the Board of Directors of ASX Compliance Pty Ltd.

Chew Choon Seng, currently the Chairman-elect of SGX, is anticipated to become thenon-executive Chairman of the combined group. David Gonski AC, currently the Chairman of ASX,is anticipated to become the Deputy Chairman of the combined group. Magnus Bcker, currentlythe Chief Executive Officer of SGX, is anticipated to become the Chief Executive Officer of thecombined group. Peter Hiom, the current Deputy Chief Executive Officer of ASX, is anticipated tobecome the Chief Executive Officer of the ASX business of the combined group.

David Gonski AC will remain as the Chairman of the local ASX Board, which will comprise amajority of Australian resident directors currently serving as ASX directors. It is the intention of the


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parties that these arrangements will be ongoing. The ASX Board will provide governance oversightof all Australian licensed operating entities of the combined group.

Subject to regulatory approval, an intermediate holding company will be created for all theSingapore licensed operating entities of the combined group, which will have a board comprisingrepresentatives from the ASX-SGX Limited Board.

The transaction is unanimously recommended by the Boards of Directors of each of ASX and SGX.All the directors of ASX and SGX have stated their intention to vote any shares they hold (directly orindirectly) in favour of the proposed combination. The support of the ASX directors is subject to anindependent expert concluding that the Scheme is in the best interests of ASX shareholders andthere being no superior proposal.

UBS is acting as financial advisor for ASX. Morgan Stanley is acting as financial advisor for SGX.Freehills and Stamford Law LLC are serving as legal advisors to ASX. Allen & Gledhill LLP andClayton Utz are serving as legal advisors to SGX.

Under the terms of the Scheme, ASX shareholders will be paid a combination of A$22.00 (S$28.04)in cash and 3.473 new ordinary SGX shares for each existing ASX ordinary share (SchemeConsideration).Based on SGXs last traded price of S$9.54 and using the exchange rate of S$1=A$0.7847, thisvalues ASX at S$10.7 billion (A$8.4 billion) or A$48.00 per ASX share.

The value of the Scheme Consideration represents: a premium of 37.3 percent to the last traded price of ASX shares on 22 October 2010; a premium of 47.0 percent to the 3-month volume-weighted average price (VWAP) of ASXshares based on the 3-month VWAP of SGX shares; and

a premium of 45.2 percent to the 6-month VWAP of ASX shares based on the 6-month VWAPof SGX shares.The transaction is also expected to create substantial value for SGX shareholders and to beaccretive to SGXs earnings per share by approximately 20 percent, based on FY2010 pro formafinancial results and before taking into account estimated cost synergies.Given the expected increase in SGXs earning per share from the proposed combination (based onFY2010 pro forma financial results), barring unforeseen circumstances, SGX currently expects thatits shareholders should be able to enjoy higher absolute dividends per SGX share in the mediumterm with a minimum dividend payout ratio of 70% of net profit after tax for the combined group.

Approvals Required:

The transaction will be subject to various conditions precedent including:

approval from the Treasurer of the Commonwealth of Australia under Australia's foreigninvestment rules; regulatory approval from the Australian Securities and Investments Commission (ASIC) as well as the necessary approval under the Corporations Act (or amendments to the Act),to allow an acquisition by SGX of more than 15 percent of the shares in ASX; regulatory approval from the Monetary Authority of Singapore;

approvals by ASX and SGX shareholders; court approval for the Scheme; SGX being admitted to ASX and its shares being approved for official quotation on ASX;and other customary terms.

Funding

SGX had secured funding worth S$3.8 billion and A$750 million through various banks and the loans werecoordinated by Australia and New Zealand Banking Group Limited. The two senior term loans were to bedivided into two equal sized tranches with tenors of 3 and 5 years. The banks that had agreed to extend the


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loans were Australia and New Zealand Banking Group Limited, The Bank of Tokyo-Mitsubishi UFJ, DBS Bank,Oversea-Chinese Banking Corporation, United Overseas Bank and National Australia Bank.

The interest payable for the Singapore dollar loan facility was to be based on the Singapore dollar swap offerrate plus a margin of 0.55% every year for the three-year tranche and 0.72% per annum for the five-yeartranche.

The interest payable for the Australian dollar facility was to be based on the relevant Australian bank bill swap

bid rate plus a margin of 0.75% per annum for the three-year tranche and 1.01% per annum for the five-yeartranche

Comments:

J Y Pillay, Chairman of SGX, commented: We are privileged to partner ASX, which brings to SGX a strong brand, an established business franchise and enriched capabilities. This will be a highlycompetitive exchange group in an increasingly globalised world.

David Gonski AC, Chairman of ASX, said: I am delighted to recommend this combination in the

knowledge that it presents the opportunity for ASX to play its part in positioning Australia for growth within theregion; and at the same time providing its ongoing role for Australian corporategovernance and listed company oversight.

Magnus Bcker, Chief Executive Officer of SGX, commented: The combination of ASX and SGX, offering innovative new products and services to the market, will allow customers to maximisefuture opportunities, where Asia Pacific takes centre stage globally as the source for capital, wealthcreation and trading opportunities.

Robert Elstone, Managing Director and CEO of ASX, said: In a period of profound structuralchange in financial markets, ASX has carefully considered its strategic options to enhance its futurecompetitiveness. This combination delivers tangible value today and presents the opportunity for

shareholders, customers, employees and other stakeholders to participate in the growth optionsthat this broader based exchange group can make available in the future, whilst preserving stronggovernance and regulatory oversight in Australia.

Robert Laible, head of electronic trading services and program trading sales, Asia-Pacific, Nomura, says,Many exchanges in Asia are viewed as crown jewels and are protected by monopoly status. But those thatare public companies also have shareholders and must produce quarterly revenues and deliver growth. It nolonger suffices to say, I hope the market goes up. I hope people will list on my exchange'. There actually hasto be a more compelling reason why a company wants to list on a given exchange. The fact that there are jointinitiatives underway, whether it's the ASEAN markets, or a merger between ASX and SGX, I think it makessense.

But Credit Suisse research analysts Anand Swaminathan and Sanjay Jain do not expect significant revenue or

cost synergies from the deal. SGX and ASX have been involved earlier in a cross-trading link, which failed totake off due to lack of demand and liquidity, they wrote in a report dated 25 October. ASX provides SGX witha much bigger liquidity pool (three times SGX's equity turnover), but much less profitable and a less attractivefuture growth profile. ASX's profitability is expected to decline further due to competition risks starting nextyear, they added.

Toby Lawson, head of futures and options and cash equities execution, Asia Pacific at Newedge FinancialHong Kong, holds the view that although the proposed merger should create cost synergies and possiblecapital efficiencies, achieving the full potential of that will be a stretch. The ASX bought the Sydney FuturesExchange (SFE) more than four years ago and they still run two distinct operating models in terms ofinfrastructure. So there's been minimal synergies from a participant and trading perspective from the ASX/SFEmerger. The ASX/SGX merger will probably not deliver some of the synergies that they are saying because


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they'll need to maintain separate operating models, driven by regulation as much as anything. The technologyis one element, but the regulatory financial requirements in terms of capital commitment to the exchanges,having separate membership criteria and other rules and regulations, all suggest that the synergies that willtake a long time to be achieved.

Laible feels that the ASX/SGX merger could potentially accelerate the formation of the ASEANtrading link, ofwhich SGX is a participant. Once you have some consolidation, what quickly becomes apparent is everybodylooks to see how they are positioned and nobody wants to be the odd man out. Everybody wants to partnerwith someone that creates some kind of synergy. If you look at the underlying technology, and you're bothusing the same platform, do you really need to be supporting two versions of it with the same amount ofupgrades and dollars that go to support that? If that platform happens to be Nasdaq OMX, then all you reallyneed to have is one version of the technology and other exchanges that might have that same technology willsay, That's the right group for me to join because I can instantly create synergy from a technologyperspective'. Others might say, 'My economy is very resource-based and to diversify resources companieslisting, maybe I should partner with another exchange that has more financial conglomerates or real estatecompanies'. As an exchange you're trying to smooth your earnings and if you're a one-trick pony, then you'rereally going to be nothing more than a proxy for the underlying stocks that are listed on your exchange, Laibleadds.

Peter Fowler, chief operating officer of Chi-X Australia, says it is now even more important for there to beclarity and timely resolution concerning the rules and regulatory environment for multi-market platforms so thatthe Australian government can enable its in-principle approval for Chi-X Australia to operate. The proposed

takeover highlights the need for Australian investors to experience the benefits of competition in tradingplatforms lower trading costs, more innovation, a stronger market structure, more liquidity that Chi-Xplatforms have delivered in other markets, he says. Exchanges do not own liquidity investors in the market,from the smallest retail investor to the largest international institution, do. Investors will gravitate to marketswith the most efficient platforms structures and it is important that Australia has a multi-platform environmentto encourage cost competition, innovation and greater market liquidity.

What Happened:

The Australian government officially blocked the USD8.4 billion deal on 5th April 2011.

Why it was blocked:

The Foreign Investment Review Board of Australia raised concerns arguing it was not in the national interestand the deal was blocked by the Treasurer under the Foreign Acquisitions and Takeovers Act to prohibit theproposal by Singapore Exchange to acquire ASX Ltd on national interest grounds.

The reasons for the rejection were:

1. The perception that it would not be a merger but takeover andAustralias financial sectorwouldbecome a subsidiary to a competitor in Asia

2. Australia believed that SGX was a relatively smaller regional exchange based on the number ofcompanies listed and the value of those listings and the deal would not provide a gateway to Asiancapital flows as SGX has limited flows to the rest of Asia. Hence this would not have provided any

competitive edge to ASX.3. The proposed takeover would have caused many financial sector jobs to move to Singapore and

would have benefited Singapore more than it would have benefited Australia4. Ceding regulatory control of ASX would raise serious risk to the stability of Australias financial system

since ASX clears and settles all trades in the country and plays a key role in guaranteeing the market'sintegrity and stability.
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Team perspective on why the deal failed:Some of the stated reasons seem emotional and xenophobic which are important from the political viewpoint.The merger needed to be approved by the Australian parliament and the issue of national interest might havecome to the forefront since the Singapore central bank (indirectly Singapore government) has a 23 per centnon-voting stake in SGX. The merger terms actually allowed the Australian government to retain fullsovereignty in relation to the regulation of securities trading within its borders so the national security riskreason does not seem credible.

The other reason for the deal failure could have been that even though SGX had the ASX and its shareholderson board they underestimated the government role in the deal. Under Australian law, no single shareholdercan own more than 15% of the ASX, and any proposal to lift that threshold must be tabled in Parliament for 15days of debate.

The government should not pass judgment on whether a deal is profitable since the market is efficient enoughto decide. In this case the market seemed skeptical of the deal since the ASX shares moved up only 19% to41.75 Australian dollars (US$40.97), that still represents a 13% discount to SGX's offer of cash and shares,which valued ASX at A$48 a share. This could be because the ASX shareholders felt that there were getting abad deal since ASX is a much bigger exchange and had 4 times the listings of SGX. The costs of trading onSGX are among the highest on the world and the exchanges did not intend to combine their clearing houseswhich would have restricted the potential of the merged entity to build trading volumes.

Also, SGX shares had lost about S$1.6 billion of their value since the deal was first announced in October,falling about 15 percent from their pre-announcement value. The shares rose 6 percent after news of therejection indicating that SGX shareholders were also not happy about the deal. This could have been because

ASX was a slower growing company (trading at 16 times its prospective earnings) as compared to SGX whichtraded at 26 times its earnings.

All the factors combined together indicate that the deal would have failed anyway since the market did notseem very positive about it.

Reference: Wall street Journal 25 Oct 2010, Reuters 6 Apr 2011

Stock prices:

The head of the Stockbrokers' Association, David Horsfield, says that is why ASX shares are trading so farbelow the offer price of around $48 a share. "It's the regulatory risk that people are building into the shareprice at the moment," he said. But he says the deal does seem to offer significant benefits to both exchanges."There's no doubt that the cost efficiencies by the two exchanges coming together seem to be quitesignificant."

Share analyst Andrew Hills from Wilson HTM says the deal is attractive to ASX shareholders."It's a fantastic deal for ASX shareholders. I mean, the premium of this transaction values ASX at a 37 per

cent premium to its previous close," he explained.

However, he says the real benefit to shareholders is much lower, because the company would be taxed inSingapore and unable to give franked dividends.

"Current ASX shareholders will not receive franking credits in the merged company, so that reduces thepremium by about 20 per cent or so, depending on how you value franking credits," he added.Investors seem to have cottoned onto that, with ASX shares trading at $39.48 by 1:27pm (AEDT), after hittinghighs of almost $44 yesterday.


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ASX shares had dipped even lower this morning, to $38.18 by 12:17pm, after the comments by SenatorBrown and other MPs.

Investors also seem to think Singapore's exchange is overpaying, with its shares falling around 6 per centyesterday, and another 2 per cent today.

Twists and turns

In an unexpected twist, parliament never got to vote on the offer. Instead, word got out in late March that the

government had already made its decision.

In a series of media leaks and statements, which analysts said raised questions about the independence ofAustralia's regulatory processes, it was clear by late March the bid was in its death throes.

At the time, Bocker and his advisers were focused on providing reams of documents and information toAustralia's Foreign Investment Review Board (FIRB), a secretive panel of senior businessmen, who makeformal recommendations to the Treasurer about whether a takeover is in Australia's "national interest".

FIRB had been expected to take another two months to weigh up the bid and Bocker and his advisers weresettling in for the long haul when word came from his advisers in Australia on April 4 that something was up."The advice was that there could be something coming out in Australia. We weren't sure what it was," said asource with knowledge of the deal.

On April 5, the disconcerting news hit Bocker's desk.

FIRB had written to the SGX saying Swan was of the view that the bid should be rejected. Swan went publiclater that day, saying FIRB had advised him the takeover was not in the national interest and he "intended" toaccept that advice.

FIRB was telling the SGX what Swan thought and Swan told the world what FIRB thought but no one wastelling anyone what they actually thought themselves, Australian pundits noted.

Bocker quickly called a meeting at his office to discuss what should be SGX's next move and decided to gopublic with his views.

Bocker had launched the audacious cash-and-shares bid for ASX in October just 10 months into the top job atSGX. The slim 49-year-old Swede with a booming voice and a ready laugh is a glad-handing networker, afamiliar character-type in the Australian business world. So the father of three children felt a little aggrieved bythe tone of the rejection.

"Like us, he (Bocker) was very surprised on how strong the FIRB statement was," the source said.The FIRB statement came after SGX and ASX had replied to more than 100 queries from the regulatorrelating to their merger proposal, sources with knowledge of the deal said.

Bocker later told reporters he was surprised because the letter contained no criticism of the proposedstructure of the deal or the governance for the merged exchanges.

He was clearly annoyed, his mood not helped by technical issues with a chaotic conference call that afternoonas journalists and fund managers from around the globe scrambled to dial-in.

The rejection was a major blow, because the marathon-running Bocker had been discussing exchangeconsolidation with Elstone on and off for years.

Their relationship goes back to around 2000 when Elstone was running the Sydney Futures Exchange (SFE).Bocker was then chief operating officer at Scandinavian exchange OMX and was selling technology to theSFE for its next-generation clearing system.

The talk got serious around mid-2010 when new competition from alternative trading platforms ramped uppressure on exchanges globally to cut costs. Elstone's pending retirement was also a major factor in the


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marriage, as there would be no ego to stand in the way of Bocker's desire to run the combined company, thesources said.

Another key relationship was between ASX chairman David Gonski, who is on the board of Singapore Airlinesand Singapore Air's CEO Chew Choon Seng is SGX chairman.

Trials

15 Feb 2011: SINGAPORE : Stock markets are now more optimistic that the proposed merger of theSingapore Exchange (SGX) and the Australian Securities Exchange (ASX) will go through.

This comes after SGX and ASX on Tuesday announced changes to the proposed board structure of themerged entity.

The new arrangements include an equal number of 5 Australian and 5 Singaporean directors on the board aswell as a smaller board, comprising 13 members, down from 15 proposed previously.

There will be 3 international directors, including current SGX CEO, Magnus Bocker.

Under the original agreement, ASX would have only had 4 board seats on a 15-member board.

Meanwhile, ASX and all of its licensed subsidiaries will maintain boards with a majority of Australian directorsand an Australian citizen as Chair.

According to market analysts, before Tuesday's development, the stock market was assigning a 42 per centprobability to the merger overcoming political opposition in Australia.

After a jump in ASX's shares on Tuesday, the odds have improved to around 50 per cent.

SGX also said it will approach the Australian Foreign Investment Review Board (FIRB) in coming weeks,seeking the authority's approval for the merger.

Lobbying efforts

The ASX hired senior lobbyists to pitch its case. David Gazard, who once was an adviser to the formerconservative government's treasurer, and Cameron Milner, who has worked with current Prime Minister JuliaGillard, led the charge, while well-connected bankers at advisers UBS were also involved. However, thelobbying may have started too late.

A majority of politicians and their advisers questioned by Reuters in the last week of March said they had littleor no interaction with representatives from either exchange and the general feeling was that the deal wasdoomed.

SGX sources played this down, saying a lot of effort had gone into lobbying and they had confidence right upto the end of winning support from the government and the Opposition to get the deal through parliament.

Australia's minority government only holds power with the support of Greens and independent politicians andthe SGX needed the opposition Liberals-National Coalition on board to get a deal through.

While the opposition's support for a deal was unclear, it didn't stop it from accusing the government ofbungling the decision-making progress.

"Wayne Swan has turned Australia's international reputation into that of a third-world country. His bungleddecision-making process has reflected poorly on Australia in what has been a complex commercial process,"

Australia's shadow treasurer, Joe Hockey said.

It was the first time the Australian government had rejected a major foreign takeover on national interestgrounds since 2001, when Royal Dutch Shell's bid for Woodside Petroleum was blocked.


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Swan said he would not oppose future deals if they protected Australia's financial architecture, enhanced thecountry's standing as a financial services centre in Asia, boosted access to capital for Australian businessesand supported growth in high-quality financial services jobs.

However, the ASX is now seen as largely off limits.

The deal's rejection also puts Bocker in a bind as he seeks other merger partners. Bocker has long had areputation as a deal-maker. He joined Swedish exchange operator OMX in 1986 and made his mark bringingtogether seven Nordic bourses to form OMX AB, which he led between 2003 and 2008, before selling out toNASDAQ.

"I don't see myself as a dealmaker, he told Reuters last month in an interview.I see myself as an operator. Ilike building, changing and growing exchanges."

Analysts say he'll be back in the fray after nursing his wounds from the bruising Australian bout, but he maynot be the hunter next time, but the prey. (Why will SGX be the takeover target after the failed merger?) Financial exchanges around the world are chasing cross-border deals to build scale and cut costs amidincreasing competition from alternative trading platforms such as dark pools.

The Tokyo and Osaka exchanges are in talks. Deutsche Boerse is competing with a partnership of NasdaqOMX Group and Intercontinental Exchange to buy NYSE Euronext . The London Stock Exchange is looking to

combine with Canada's TMX Group .

The ASX experience has left Bocker and the SGX poorer and perhaps wiser. The Singapore exchange lastweek reported a lower-than-expected net profit, after booking $S12 million ($8 million) in costs related to thefailed takeover bid. Now, analysts say, the talk in the market is that SGX itself is a takeover target.

Bocker says he'll pocket the lessons learned and continue to seek out partnerships and strategic alliances,though nothing tangible was on the horizon.

"Of course with the lessons learnt from ASX we will see what other things we can do, in line with otherexchanges as well. So nothing specific."

To try to save the deal, ASX and SGX did this: They deployed lobbyists to the Australian capital of Canberra,

other global exchanges had since announced their own plans for mergers, and they had even amended theterms of the original offer to include more Australian directors on the combined entity's board. This had littlesway on the Treasurer who on April 8 described his decision to reject the proposal as a "no-brainer".

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Possible effects of blocking the deal:

Mr Swan has risked damaging the country's appeal to foreign investors with the comprehensive rejection,which deals a major blow to the ASX's hopes of finding a partner against a back drop of consolidationamongst exchanges globally.

The SGX deal is only the second takeover to be rejected by Australia in the past decade, the last coming in2001 when Royal Dutch Shell was prevented from buying Woodside Petroleum.

By promising to beef up the existing regulatory structure Mr Swan offered the ASX an olive branch for possiblefuture mergers, though ownership stakes bigger than 15 per cent will continue to require parliamentaryapproval.

The decision threw a spanner in the works for the wave of exchange consolidation sweeping the globe andhas left a cloud hanging over the future of the SGX, which needs to find new partners or possibly beswallowed up itself.
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Afterwards:

By promising to beef up the existing regulatory structure Mr Swan offered the ASX an olive branch for possiblefuture mergers, though ownership stakes bigger than 15 per cent will continue to require parliamentaryapproval.

Illustrating the depth of political opposition, Greens leader Bob Brown, a vociferous opponent of the merger,welcomed the veto. "This is the right decision," he said.

SGX said that it believed Asia would remain the world's growth engine in the coming decades."SGX, as the Asian gateway, is well-positioned to leverage on opportunities within Asia's vibrant and dynamiceconomies, SGX said.

"As Asia's most international exchange, we will continue to pursue organic as well as other strategic growthopportunities, including further dialogue with ASX on other forms of co-operation."

An ASX statement said: "ASX will continue to evaluate strategic growth opportunities, including furtherdialogue with SGX on other forms of combination and co-operation."

The ASX is seeking a new CEO due to the planned retirement of incumbent Robert Elstone.

Mr Swan brushed off concerns over protectionism or political interference in his decision and said the

unanimous advice from the Foreign Investment review Board, or FIRB, was the major factor in influencing hisdecision based on the grounds that Australia would lose sovereignty over its clearing systems andcompromise Sydney's goal to become a regional financial hub.

To be sure, Australia isn't alone in blocking deals. Last year Canadian regulators blocked mining giant BHPBilliton's attempted takeover of Potash Corp of Saskatchewan, while the proposed merger of TMX Group andLondon Stock Exchange Group also has its critics in Canada.

Illustrating the depth of political opposition, Greens leader Bob Brown, a vociferous opponent of the merger,welcomed the veto. "This is the right decision," he said.

But Professor Alex Frino disagrees with Canberra's decision.

He argues the rejection sends out a signal that Australia is unwilling to embrace global markets.(SOT) Professor Alex Frino, Professor of Finance, University of Sydney and CEO of Capital MarketsCooperative Research Centre:

It's definitely a step back for Australia's market place, and the liquidity of the Australian market. This type ofglobal combination would have helped us get greater exposure and greater reach internationally because theSingapore Exchange is very successful at doing that.

Analysts now warn the decision will hurt foreign investment in the nation.

Moody's Analytics - a unit of Moody's - went as far as to say it will do "considerable harm" to the country'sreputation as a destination for foreign investment.

Professor Frino also holds a fairly grim view. He warns ASX shareholders are unlikely to receive a better offer.(SOT) Professor Alex Frino, Professor of Finance, University of Sydney and CEO of Capital MarketsCooperative Research Centre:

The only other suitor that has a balance sheet that's more powerful in the region is the Hong Kong stockexchange. And it's unclear though whether they can offer something as strong as SGX in terms of the secondhurdle that needs to be cleared in this type of combination which is offer something that's in the greaternational interest of Australia.

So what's next for the two exchanges?


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Some tip the SGX could itself become a takeover target, now its plans of a union with the ASX have fallenthrough.

But Neil Katkov of research and consulting firm Celent doesn't think that's likely. He says the two boursesshould now focus on alternatives to mergers. (SOT) Neil Katkov, SVP, Asia Research, Celent:

One thing is its valuation is extremely high, so that would dissuade suitors. But the other is, really if someone,some U.S. or European exchange did make a bid for SGX, it's quite likely the Singapore regulators wouldrefuse that as well in the same way. But I think what the exchanges have to do is look for alternatives to outand out mergers for the time being, until the regulators sort of catch up with the world trend of allowingmergers with their exchanges.

Reply to PQs on Proposed Merger of SGX and ASX

Question No ----631Notice Paper No. 246 of 2010Question No ----633Notice Paper No. 246 of 2010For Oral AnswerDate: For Parliament Sitting On 22 November 2010Name and Constituency of Members of Parliament

Teo Siong Seng, Nominated Member of Parliament;Ho Geok Choo, MP for West Coast GRC

Questions

Q631 Teo Siong Seng: To ask the Senior Minister if he can explain the rationale behind the plannedacquisition of the Australian Securities Exchange by the Singapore Exchange and how it will benefit the localinvestors in Singapore.

Q633 Ho Geok Choo: To ask the Senior Minister (a) how will the proposed merger of the Singapore StockExchange and the Australian Stock Exchange benefit Singapore and Singaporeans; and (b) how will thismerger position Singapore as the premier stock exchange in the region.

Response1. On 25 October 2010, the Singapore Exchange and Australian Securities Exchange, SGX and ASX,

announced that they had entered into a merger implementation agreement. They stated that theproposed combination of SGX and ASX would bring together complementary businesses and theirrespective strengths to serve investors better and leverage on economic growth in the Asia Pacific.They noted that although the ASX and SGX would remain separate legal entities and would be locallyregulated, the merger would diversify the product and customer bases of both exchanges. Forexample, the merger would offer investors access to the second largest listing venue in Asia Pacificwith over 2,700 listed companies from 20 countries, including more than 900 natural resourcecompanies and the largest number of REITs and exchange-traded funds in the Asia Pacific. SGX and

ASX also said that a combined group will enhance its attractiveness as a partner of choice for futureexchange industry collaboration, to tap into strong regional growth.

2. The government cannot judge the commercial merits of the proposed merger. The commercial meritswill be decided by the respective shareholders of the two entities. Indeed, the transaction would needto be approved by the requisite majorities of the shareholders of both SGX and ASX.

3. Regulators on both sides would also need to be satisfied that the proposed transaction meets all regulatoryrequirements in their own jurisdictions. In Singapore, MAS objectives as the markets regulator are spelled outin the Securities and Futures Act, as part of its overall mandate of fostering a sound and reputable financialcentre. This means that MAS has to be satisfied that the Exchange remains able to maintain efficient andtransparent markets, and is able to minimise systemic risks. In Australia, the transaction also needs theapproval from the Australian parliament, and would have to pass the scrutiny of the Foreign InvestmentReview Board.


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SYDNEY, Feb 15, 2011 (AFP) - Shares in the Australian and Singapore exchanges were suspended Tuesdaypending an announcement on the progress of a planned multi-billion dollar merger set to reshape trading inthe region.

Australia's ASX requested a two-day suspension, to be lifted after an announcement about "governancearrangements", while the SGX in Singapore released a similar statement."ASX makes the request pending the announcement of the progress of discussions concerning changes to thegovernance arrangements in connection with the ASX-SGX merger proposal," ASX said in a statement to themarket.The ASX and SGX announced plans in October for a mergerthat would create one of the world's largest and most diversified financial trading hubs.The deal, which would change the composition of the ASX board to 11 Singaporean representatives and fourfrom Australia, looks likely to face regulatory bumps in Australia.It will be reviewed by Australia's securities, foreign investment and competition watchdogs, as well as thecentral bank, and must be approved by Treasurer Wayne Swan.Parliament - where Prime Minister Julia Gillard holds just a one-vote majority in the lower house - will thenhave to pass an amendment allowing ownership of more than 15 percent in the ASX bourse.

Analysts say sticking points may include the Singapore government's large stake in the SGX, which couldraise sovereign ownership concerns, and the board's new composition.However, bourse officials did not expect major obstacles and the competition watchdog has signalled it will notoppose the deal, which met with an initial political backlash centring on Singapore's democracy and humanrights record.

failed merger of sgx and asx

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