Japanese plan to blend exchanges

JAPAN'S two main sharemarkets have announced a plan to merge operations in January 2013 to boost competitiveness and create one of the world's biggest exchanges.

By InvestSMART · 23 Nov 2011

By InvestSMART ·
23 Nov 2011

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JAPAN'S two main sharemarkets have announced a plan to merge operations in January 2013 to boost competitiveness and create one of the world's biggest exchanges.

The Tokyo Stock Exchange Group and Osaka Securities Exchange say they "have agreed to conduct a business combination" as both look to overcome a sluggish Japanese market.

"Significant synergies should be created by combining the business of the companies, which have different areas of specialty," they said.

The markets hope that combining the TSE, where most cash stocks including Toyota and Sony are traded in Japan, and the OSE, which is strong in derivatives trading, will boost the country's securities market.

The merged entity, tentatively called Japan Exchange Group would be the world's third-largest bourse behind market leader NYSE Euronext and Nasdaq OMX Group.

Senior officials at Japanese exchanges have long voiced the need to compete better with regional rivals, which have lured international firms to list.

"Domestic mergers and cross-border mergers between exchanges have been gathering momentum overseas," the companies said. "For a Japanese stock exchange to survive such global competition as a player, it must establish a highly liquid and efficient market and enhance the convenience of investors and companies through strengthening its competitiveness."

This would be achieved by "expanding its scale, diversifying the financial instruments in which it deals, and reducing costs", they said.

The deal will see the Tokyo Stock Exchange Group conduct a tender offer for the OSE's common shares next year, and convert the OSE into its subsidiary, subject to regulatory approvals, the statement said.

The companies agreed to set a purchase price of Y480,000 ($A6328) a share for the OSE's common shares. The price represents a 14 per cent premium on OSE shares' closing price on Monday of Y421,000 on the Jasdaq Securities Exchange.

After the transaction, the two entities will merge into a combined holding company, pending shareholder approval.

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Frequently Asked Questions about this Article…

What is the planned merger between the Tokyo Stock Exchange Group and the Osaka Securities Exchange?

The Tokyo Stock Exchange Group (TSE) and the Osaka Securities Exchange (OSE) have agreed to combine operations, with a plan to form a single entity tentatively called Japan Exchange Group. The deal involves TSE conducting a tender offer for OSE common shares and converting OSE into a subsidiary before merging into a combined holding company.

Why are the Tokyo and Osaka exchanges merging and how will it help investors?

The exchanges say the merger will boost competitiveness by creating synergies from their different strengths, expanding scale, diversifying financial instruments, improving liquidity and efficiency, and reducing costs — changes intended to make the market more convenient for investors and companies.

When is the merger of Japan’s two main exchanges expected to take place?

The exchanges announced a plan to merge operations in January 2013, subject to the usual regulatory and shareholder approvals required to complete the transaction.

What strengths does each exchange bring to the combined Japan Exchange Group?

The Tokyo Stock Exchange is where most Japanese cash stocks (including major companies such as Toyota and Sony) are traded, while the Osaka Securities Exchange is strong in derivatives trading. Combining those specialties is expected to create complementary benefits.

How will the deal be structured and what is the purchase price for OSE shares?

The TSE Group will make a tender offer for OSE common shares and convert OSE into a subsidiary, subject to approvals. The companies agreed on a purchase price of ¥480,000 per OSE share, which represents a 14% premium over OSE’s closing price of ¥421,000 on the Jasdaq Securities Exchange.

Do shareholders and regulators need to approve the Tokyo–Osaka exchange merger?

Yes. The conversion of OSE into a subsidiary, the tender offer and the eventual merger into a combined holding company are all subject to regulatory approvals and shareholder approval before the transaction can be completed.

How will the new Japan Exchange Group rank among global stock exchanges?

If completed, the merged entity, tentatively called Japan Exchange Group, would become the world’s third-largest bourse, behind NYSE Euronext and Nasdaq OMX Group, according to the announcement.

Will the merger help Japanese exchanges compete with regional and international rivals?

Yes. Company officials said domestic and cross-border exchange mergers have been gathering momentum overseas, and combining the TSE and OSE aims to help a Japanese stock exchange remain competitive globally by creating a more liquid, efficient market that can attract international listings.