As I move in various Canberra circles I am getting a clear message — in its present form, the Singapore Stock Exchange’s takeover bid for the Australian Stock exchange is set to be rejected.
A lot of lobbying and pressure will be applied to the government between now and decision-making time and the government may change its mind. But if a decision was to be made today, the Singapore-ASX merger would be rejected. The final decision may see approval subject to enormous qualification, possibly including the location of the head office.
The proposed French move to control AXA Asia Pacific’s Asian units is now also on the radar but the government is reluctant to reject two takeovers at the same time for fear of sending a bad signal to the market.
In my view, both takeovers are against the national interest and, if anything, the AXA takeover is worse for the nation than the ASX deal, though it’s a close race. As I will explain, if both are rejected the Australian dream of being a regional financial centre will be restored.
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Here at Business Spectator I have set out the problems with both bids. In the case of the ASX, Singapore does not have a deep regional share market, which is why its charges are four times those of Australia. However, it has a strong regional derivatives market.
What the Singapore Exchange does have is a visionary CEO, Magnus Böcker, who realises that acquiring the ASX would greatly improve the long-term outlook for the Singapore bourse.
If he is to get up this takeover, he is going to have to redraft the bid so that it is clearly in the interests of Australia. Having the head office in Sydney might not be enough. The Gillard government has a string of technical objections. The Singapore bid for ASX is one of those deals that were driven by desire for Australian shareholder profit rather than national interest. As BHP found in Canada and Brussels and News Corporation is finding in the UK, national interest is a now key force in all global takeovers (People power is changing business).
In the case of AXA, one of the greatest decisions ever made in the Paul Keating prime ministership was to require the French AXA group to make the Australian-listed company the manager and the vehicle through which AXA would expand in Asia, including India. The French were to own some 51% of the Australian company, Axa Asia Pacific (formerly National Mutual).
In other words, the Australian AXA company is in this powerful situation because of a Keating government decree. The French now want that decree to be reversed so they can take over the amazing Asian operation the Australians have created (admittedly with the help of the French).
Indeed it’s worth recording what wonderful job the current AXA Australia CEO Andy Penn and his predecessor Les Owen have done. In most of the Asian markets they have linked with a major bank or financial institution so that the Australian product can be distributed through the partner’s branch operation.
And last October Penn pulled off the greatest Asian services deal in Australian history when he and the AXA group convinced the largest bank in China to joint venture with Australia to market our savings products in China through its branches. The deal gave the Australian company “local” status in China. Through this vehicle Australia can now attack the whole market instead of the 5% allow for foreign companies.
Most of the markets in Asia are expected to grow between 13% and 15% a year for the next decade, but AXA Australia’s Asian operation is set to grow at a much faster pace because no other Asian or global company in the world has a distribution system that goes anywhere near what Owen and Penn have set up.
So Australia is now linked into the best non-bank savings product distribution system in Asia courtesy of two Australian CEOs and a farsighted decree by an Australian government. Axa has the best growth prospects of any Australian financial product business.
I must add that in the Australian superannuation arena growth has been generated via industry funds and self-managed schemes while AXA, AMP, BT, Colonial etc have been squeezed. This situation explains the desire of AMP to acquire AXA’s Australian operations, but the AMP upfront deal (which is a good one) is only about one third of the total. This is a deal about the French removing Australia as the Asian managers of the greatest non-bank savings product distribution network in Asia.
If the Australian government rejects both bids it will be telling the business community that it believes that it is in our national interest to be a major player in Asian savings products.
In the case of ASX we want to be a regional centre for Asia but the way the Singapore takeover was set up it ended that dream.
However, the combination of properly organised ASX foray into Asia and the magnificent linkages AXA Australia would give that dream, of Australia as a regional financial centre, an enormous boost. But first the two takeovers must be rejected based on their present form.
Of course, ASX and Axa shareholders would suffer some pain. But in the case of Axa it would only be short term. They are selling Asia at knock-down prices and the bid is recommended by a well meaning board for short-term reasons. They are also exhausted.
But the Axa Australia management is intact and raring to fulfil the promise they have made to Australian shareholders — to double the value of their Asian businesses value every three or four years (leaving aside the Australian dollar affect. Long-term AXA APH shareholders should do very well indeed.
*This article was originally published on Business Spectator.