On April 19, Singapore Exchange posted its lowest quarterly profit in two years, hurt by costs related to a failed takeover bid for Australian rival ASX (above) and putting the spotlight on Böckers growth strategy
If it had gone ahead, the $8.3 billion deal would have been the first substantial exchange merger in the Asia-Pacific region, and would have created the second-largest hub by number of companies listed and fourth largest by total market capitalization (behind Hong Kong, Tokyo and Shanghai).
That the SGX will not try again reflects the fact that the bid was rejected because of something it could do absolutely nothing about: Australian political sensitivity. Partly this was about the tricky question of Australian national interest always a nebulous concept and partly about timing.
There could hardly have been a worse moment to get a politically dicey development through an Australian parliament. The government has no majority; it is only in office at all because of the assistance of a couple of independent parliamentarians who must be kept happy. In such circumstances, nobody was going to expend the political capital required to change the law and allow the national stock exchange to be taken over by a foreigner.
The odd thing is that everyone seemed to know all this from the start. Magnus Böcker, chief executive of the SGX who has completed more exchange mergers than anyone else built his pitch from the outset on efficiencies, logic, technology, liquidity; the nuts and bolts of an exchange merger in a new world of capital flows. He was right on all of it, as the ASX could clearly see; hence it backed the bid from the outset. But that was never the point on which the deal would thrive or fail. Böcker thought the force of this logical argument would be enough to persuade Australian politicians and public opinion. In that he miscalculated.
Speaking to Euromoney in January, Böcker answered "absolutely not" when asked if he thought the intensity of political objection was fiercer on this deal than previous exchange merger attempts. "In all exchange mergers there is that nationalistic sadness that comes up," he said. But he hoped the industrial logic of the deal as a means of providing new sources of capital to Australian companies eager to expand would win out.
The key decision maker was Australian treasurer Wayne Swan, who, in consultation with the Foreign Investment Review Board, had the final say on whether to approve the deal. In rejecting the deal, Swan called the decision a "no-brainer".
He argued that the deal resembled a takeover more than a merger, that it would have failed to provide greater access to capital markets, and that it would mean that Australias financial sector became a junior partner to a competitor in the Asia-Pacific region.
It is the first time Australia has rejected an important foreign investment deal since 2001.
In the short term, the only people to have benefited are the banks. They have earned fat M&A advisory fees on a deal that they must have suspected from the outset could not go through. The outcome of the deal for Böcker and the Singapore Stock Exchange is less certain.
It may not all be bad. It has certainly raised the profile of the SGX at a time when global exchange mergers are once again enjoying their moment in the sun. If Böcker has successfully represented Singapore as the best possible hub through which to bring Asian liquidity into an international alliance, then it might be well placed to tie up either with Böckers old employer, Nasdaq OMX, or even suitors such as the Chicago Mercantile Exchange.
If so, everything will depend on the terms through which SGX enters such a deal. SGX being bought outright by a US institution would be politically difficult in Singapore. If Böcker is right in thinking Asia will make up half of the worlds financial markets within a decade, then its role in any merged global group ought to reflect that. Some sort of partnership, or a stakeholding allowing Singapore access to a global network while retaining some autonomy, might work well.
If none of that comes to fruition, though, Böckers reputation will have been dented unquestionably. The ASX bid was the signature flourish of a new chief executive in his first year. If all it did was cost lots of money in advisory fees, it is a poor start to his term.