Why the ASX merger should proceed

By James Greenhalgh

I'm not an ASX shareholder. But if I was, I'd be lobbying my member of parliament. This article, ASX merger plan faces parliamentary opposition, explains that the proposed merger between ASX and its Singaporean counterpart (SGX) will need approval from the Australian parliament to remove ASX's 15% shareholding limit.

Already, there's been a parochial outcry from some members of parliament about the proposed merger. But the fact is that neither the government – nor the opposition – will want Australia to look like it is anti-foreign investment. In fact, the government's decision to effectively fast-track competition for ASX has forced the exchange to sell itself to the highest bidder.

Competition begets mergers. If Australia's second-largest telecommunications company Optus – itself the product of competition – can be majority-Singaporean owned, why not ASX?

While not wishing to under-estimate the difficulties of getting the deal through our barely functional parliament, I don't believe Australian parliamentary approval will end up proving the most significant hurdle.

More important will be the response to the merger from SGX's own shareholders. My view, as I indicated in Worrying signs in ASX merger [access for members of The Intelligent Investor only] is that the merger is a great deal for ASX shareholders, who are soon to face the threat of competition.

Unfortunately, it's an equally bad deal for SGX, which explains why shares in that company have now plunged 8% in two days. If there's one reason this merger will fail, it's because SGX shareholders will kick up a fuss about paying a big price for a mature, under-threat asset.

Thankfully for ASX shareholders, SGX shareholders don't get to vote on the merger. And SGX chief executive Magnus Bocker, who only slipped his shoes under the desk last December, shows all the signs of wanting to grow at any price. His history shows as much.

That alone makes me think this merger will proceed.