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Merger of ASX and SGX Team: Ameya, Janhavi, Jason, Prabodh, Zaheed

Industry Background

The stock market industry was undergoing consolidation. Example: Deutsche Boerse and NYSE Euronext Competition in the industry was increasing duet to: advancement and integration of financial markets, technology and globalisation Government regulations were constricting the working of stock exchanges

About the Exchanges

SGX
2nd largest listed stock exchange in Asia Gateway to Asia for many investors Offers securities, derivatives and commodities products Services include listings, trading, high-speed market access, clearing and settlement to depository services and central counter party services for OTC traded derivatives.

ASX
Amongst worlds top-10 listed exchange groups by market cap Activities include primary and secondary market services, central counterparty risk transfer, and securities settlement for both, equities and fixed income products Diverse domestic and international customer base

How the Merger Story Began

Wayne Swan, Australian Treasurer first heard the news while he was in Gyeongju, Korea to attend the G20 conference SGX boss Magnus Bocker and his team of bankers and lawyers flew to Sydney, and worked long hours to finalise the terms of the ambitious takeover bid "Magnus and I have not had a lot of sleep over the weekend. This is the beginning of what is probably five to six months of hard slog," Richard Elstone, ASX

Motivation Behind Merger

1. Threat from the entry of the dark pools of liquidity 2. Threat from the rise of China 3. Promoting Australia as a regional financial hub 4. Reduced cost of capital 5. Opportunities for diversification 6. Key complementary features of ASX and SGX

New Merged Entity

New holding company: ASX-SGX Limited

5th largest stock exchange by market cap (US$12.3 billion) offering access to more than 2,700 listed companies from 20-plus countries Entity to operate out of Sydney and Singapore
15 BoD members including 4 Australians

A$ 22 + 3.473 SGX shares ( S$ 9.54) i.e. 37.3% premium

Code name: Avatar

Approvals Required
1. Wayne Swan, Treasurer of Australia 2. Australian regulatory approval: to allow an acquisition by SGX of more than 15 percent of the shares in ASX 3. ASX and SGX shareholders 4. Monetary Authority of Singapore 5. Court approval

Immediate Effects on Stock Price of Both

ASX shares were trading at A$ 37- A$ 39 v/s offer price of A$ 48

Investors factoring in The regulatory risk Lower benefit to ASX shareholders due to inability to give franked dividends

50.00

15.00

45.00

13.00

40.00

11.00

35.00

9.00

30.00

7.00

25.00 2010-07-05

5.00 2010-11-05 ASX 2011-03-05 Offer Price 2011-07-05 Adj. Offer Price SGX 2011-11-05

Issues Concerning the Merger

1. National interest of Australia 2. Loss of jobs in Australia 3. Value Destruction 4. Opposition from Tokyo 5. Opposition from Hong Kong 6. SGX stock down gradation

Efforts by ASX and SGX to Push Merger

1. Changing the board structure to have 5 ASX directors, 5 SGX directors and 3 foreign ones. 2. Answering over 100 queries from the Foreign Investment Review Board (FIRB), who were the advisors to the Australian treasury 3. Lobbying efforts: David Gazard, Cameron Milner and senior investment bankers

Why Blocked?
Merger blocked on 5th April 2011
Reasons given by Australian Government and Treasury Perception of takeover not a merger Risk to Australias financial markets Financial sector job loss Singapore will benefit and not Australia

Team Perspective Emotional and Xenophobic response Not enough lobbying by SGX Singapore Government holding 23% shares in SGX Market too not happy with the merger Merger would have failed anyway

After Effects of Blocking the Deal

1. Damage to Australias image 2. Uncertainty over future of SGX 3. Cost to SGX: S$ 12 million 4. Retirement of Elstone

What Should SGX Have Done

Softer approach, picturing the operation as a strategic tie-up rather than a takeover Focus more on convincing Australian regulators early-on and communicate more with them Warranting that commercial jobs would remain in Sydney and not move to Singapore Start with a minor stake in AGX, rather than going for an all out M & A

Thank You. Q&A