We had some news and movement yesterday in the two big financial services deals afoot in Australia: the proposed takeover of the ASX by the Singapore Stock Exchange and the proposed takeover of AXA Asia Pacific Holdings by the AMP.
The two deals are worth close to $23 billion, if they go ahead.
The AXA deal looks probable, although final approval from the federal government is needed, but the ASX takeover remains very uncertain.
AXA revealed an 11 % drop in full year earnings to $602 million and the ASX and Singapore Exchange (SGX) revealed a change to the corporate governance and board composition of the merged company to try and win approval from investors and the federal government.
Of the two deals, the $8.4 billion bid for the ASX by SGX is the most important with its political and business fallout here and offshore.
The gist of the new arrangements announced late yesterday will be: the merged entity will now feature a board containing an equal number of Australian and Singapore citizens, with five of each, plus three international board members.
One of those international members will be current SGX managing director Magnus Bocker, with the remaining two positions filled after the merger.
Under the previous proposal, a 15-member board would have featured seven Singaporean citizens.
Senior management, including the Australian business CEO of the ASX will continue to be based in Australia.
The new arrangement would be maintained for five years. And a guaranteed $30 million minimum in capex has been committed to for the next five years as well.
"Fee structures in Australia will be responsive to the Australian commercial environment and will continue to be competitive.
"These fees will be set independently of, and without reference to, the fees charged by ASXSGX Group for products and services in Singapore or any other jurisdiction in which the Group may operate," the statement said.
In two other changes, the ASX and its licensed subsidiaries will maintain boards with a majority of Australian citizen directors and an Australian as chair.
And current SGX chairman Chew Choon Seng would chair the combined group, while current ASX chairman David Gonski would be deputy chairman and chairman of the ASX-SGX integration committee.
The Australian Competition and Consumer Commission (ACCC) has given its approval to the proposed acquisition, but the green light is still needed from the Foreign Investment Review Board (FIRB), and then the Federal Treasurer, Wayne Swan, plus Federal Parliament, which will be required to lift the 15% ownership constraints set out in the Corporations Act.
Regulatory approval is also required in Singapore before shareholders get a final say.
ASX shares added 65c, or 1.7%, to $39.00 at the close (the changes were revealed at 3.40 pm after ASX shares went into a trading halt in the morning).
The general thrust of early market commentary is that the changes have improved the chances of the deal happening, but because it will be a political decision in the end, no one is confidently forecasting that the takeover will proceed.
Interestingly the statement revealed that a couple of new products were being planned. They are:
"An Australian dollar interest rate swaps clearing facility for over-the-counter financial products – this will support the growth of Australia’s capital markets by strengthening links with global OTC markets and reduce systemic risks and costs to market users;
"A passport listings service – initially available for the top 200 stocks, this will enable streamlined admission arrangements for SGX issuers to join ASX (and vice versa) to expand their Australian and Asian investor base and improve their access to capital;
"Mutual offset arrangements – to enable holders of ASX and SGX derivatives positions to consolidate their exposures and reduce their costs."
A fall in funds under management saw AXA Asia Pacific Holdings post an 11% fall in full year profit or 2010, probably the last result the company reveals ahead of the $14.6 billion bid from the AMP.
Net profit fell to $602 million for the 12 months to December 31, from $679 million in the prior corresponding period, AXA APH said on Tuesday.
Operating earnings, which the company says is a better indicator of the underlying performance of the business, gained 3% on the previous year to $572 million.
Funds under management, administration and advice fell 9% from a year earlier to $73.83 billion.
AXA APH minority shareholders are due to vote on the AMP takeover on March 2.
The company’s Australian operating earnings rose 8% and operating earnings in New Zealand were up 24%.
The company’s growth in South East Asia remained strong, with operating earnings up 44% and now contributing more than half of its Asian new business.
AXA APH declared a final dividend of 9.25c per share unfranked.
CEO Andy Penn said in the statement, “This is a strong result with Group Operating Earnings up 13 percent, after taking into account the impact of the strengthening Australian Dollar. We saw particularly strong performance in the second half of the year.
“After more than a year of ownership uncertainty, I am very pleased with the professionalism and focus of our teams and the exceptional performance of our businesses.
"The AXA APH operations are well positioned to continue to grow, and we will be handing the businesses over in good shape if the merger with AMP and the sale of the Asian business to AXA SA are approved."
