The Singapore Exchange Limited (SGX) takeover of the Australian Securities Exchange (ASX) has been rejected on 'national interest' grounds. It was, as the Australian Treasurer said, a 'no brainer'. The great puzzle is that the ASX Board ever thought that it would get a tick.
It would have required special legislation to change the normal 15 percent limit on a single owner of a financial institution. It would have meant more nice white-collar jobs would shift to Singapore (the 'Adelaide problem'). It would have made it abundantly clear (if this weren’t already apparent) that Australia had given up on its hope of being an international financial centre. And it would have been another example of foreigners benefiting from a moment of market weakness in prime Australian assets to 'buy up the farm', following the example of the BHP/Billiton merger, the takeover of MIM by Xstrata and the near-miss with Rio.
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But above all, it had the wrong relativities between the parties. Were we ready to have our stock exchange taken over by a rival exchange whose capitalisation of listed stocks is half that of the ASX? A rival whose capitalisation is high only because it operates as a protected monopoly, with government-dominated ownership and whose operating methods are so leisurely that until recently it closed up at lunch-time so that the traders could go out to have a bowl of laksa?
Of course, none of this can be put forward officially as reasons for rejection. Many in the business community are 'outraged' and are demanding technical reasons as to why the market wasn’t free to do what it wanted to do. They are totally out of touch with the politics (or have they forgotten that we live in a democracy, where the public view is less fixated by the bottom-line).
Australian opposition leader Malcolm Turnbull got it right when he said that it would havelooked quite different if it had been a merger of equals. Sure, opposition politicians are taking the opportunity to criticise the Treasurerover the decision, but none of them is suggesting that the outcome was wrong.
All this leaves the ASX in an awkward position. The failure has left the brand as 'damaged goods', at a time when it is in an awkward transition to a new CEO (a fact that may have influenced the timing of the SGX bid). Worldwide, exchanges are merging to spread fixed costs, even when there are no natural synergies for customers or commonality in the transactions.
The SGX wasn’t a perfect partner (it hasn’t succeeded in breaking into the China market and Singapore is widely disliked among its regional neighbours). But it is a link to Asia and to the embryonic plan to merge South-east Asian exchanges. There might have been enough common interests to justify a merger of equal partners. But not a takeover.
Having forced the issue at this time, with all the contrived ambiguity over the rejection, the ASX Board will have a tough time explaining to possible suitors that it’s still available for marriage.
The bigger issue is how Australia should handle a world where we have assets that are very attractive to foreign countries with longer investment horizons than our own short-term-focused funds managers have. Are we going to sell a few more national icons, every time the vagaries of our equity markets present some cut-price opportunities, just to show that we are good global citizens?
With our dollar well over parity, we're not scratching around for capital inflow. And as far as our reputation in the region goes, China and Singapore both understand very well that you don't just leave foreign investment up to the free market.
After all, they certainly don't do this for foreign investors in their own economies.
Stephen Grenville is a consultant on financial sector issues in East Asia. He is a Director of AMP Capital Investors Limited and an Adjunct Professor at the Australian National University.
(This article is an edited version of an entry that appeared in the Lowy Institute's Interpreter that can be found here.)