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Tie-ups, strategic investments more likely than merger for SGX, observers say

They play down speculation of merger with parties including Nasdaq and CME Group
Friday, March 31, 2017 - 05:50

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SGX shares closed at S$7.76 on Thursday, lower by 0.1 per cent or a penny, after Bloomberg cited "people familiar with the matter" saying that the market operator had discussed potential collaborations, a stake sale and even a full merger with parties including Nasdaq and CME Group.

Singapore

MARKET observers played down speculation on Thursday about the Singapore Exchange (SGX) exploring strategic deals, saying that commercial tie-ups or narrowly targeted acquisitions are much more likely than a merger of market operators.

SGX shares closed at S$7.76 on Thursday, lower by 0.1 per cent or a penny, after Bloomberg cited "people familiar with the matter" saying that the market operator had discussed potential collaborations, a stake sale and even a full merger with parties including Nasdaq and CME Group.

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Bloomberg said that it was unclear if any of the talks are currently active, and that SGX has not hired any advisers or made a formal decision on how to proceed.

CME, Nasdaq and SGX have not commented on the story.

The market was wary about expecting too much to come out of the speculation.

In terms of mergers and acquisitions (M&A), a union with another exchange is seen to be moonshot even if there are benefits to be derived from reduced competition and greater scale.

One analyst, who declined to be named because of compliance reasons, said that SGX's failed attempt to merge with the Australian exchange in 2010 and Deutsche Boerse's blocked bid this week for London Stock Exchange Group suggested that significant M&A between exchanges was difficult to pull off without regulatory and political support on both sides.

"Anything is possible, but countries tend to be very nationalistic about this," the analyst said.

Industry sources told BT that SGX always keeps an eye out for opportunities, and less onerous strategic investments that can accelerate growth in specific business lines are more likely to occur, the exchange's recent acquisition of the Baltic Exchange being the latest example.

In fact, CIMB analyst Jessalyn Chen wrote in a March 27 report that SGX has a S$395 million war chest and could be looking for larger investments in the market data or indices spaces to "provide more meaningful earnings uplift and diversification".

Ms Chen upgraded her call on SGX to "add" from "hold" on March 27, before the Bloomberg report, with a target price of S$8.09.

Neither Ms Chen nor any of the analysts BT spoke to said they would review their recommendations and target prices for the stock as a result of the latest speculation.

Commercial collaborations are also perceived to be more likely and easier to accomplish than strategic investments.

But the impact of any tie-up is not expected to be significant, the observers said.

To begin with, SGX exploring collaborations with its industry peers is seen to be part and parcel of the exchange's work. For instance, the Singapore and Taiwan exchanges have a strategic partnership agreement, and Taiwan Stock Exchange member brokers can directly trade SGX-listed stocks.

"Collaboration is definitely something that could happen," another analyst said. "They already have tie-ups with some of these groups. That wouldn't be anything new."

Even when a partnership is formed, being able to make money off of the collaboration is another matter, an analyst said.

"I'm sure they talk to many exchanges," he said. "There are many things they can collaborate on. But how to monetise it and how to make it grow is a second stage that they still have to go through."

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