Tue, Nov 08, 2011 page10

• Osaka bourse rises on report of TSE merger

  CONSOLIDATION: While cross-border mergers have met with resistance, industry observers said unifying Japan’s top two bourses appear inevitable

  • Bloomberg
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  Osaka Securities Exchange Co (OSE) yesterday rallied the most since August after the Nikkei Shimbun said Tokyo Stock Exchange Group Inc (TSE) has entered late-stage takeover talks to buy the operator of Japan’s second-largest equities market.

  Osaka Securities rose 7.3 percent to end at ￥391,500 (US$5,012). Tokyo Stock Exchange, a privately held company that runs the main venue in the world’s third-largest equity market, would offer to buy as much as 66 percent of the Osaka bourse, Nikkei said.

  TSE has made no decision like that reported yesterday, the exchange said in a statement. Osaka’s bourse has made no decision on a merger, it said in a separate statement.

  TSE president Atsushi Saito in March began talking publicly about a merger between Japan’s largest two bourses. A marriage would give the 133-year-old Tokyo exchange, home to Sony Corp and Toyota Motor Corp, access to OSE’s derivatives trading system with Nikkei 225 Stock Average futures. It may also cut computer system costs for both companies.

  “From the point of view of efficiency, it makes sense for the OSE and TSE to bring their respective strengths in derivatives and stocks to a merger,” said David DeGraw, a director in electronic trading services for Daiwa Securities Capital Markets Co in Tokyo. “A merger would reduce IT [information technology] costs in the long term if the exchanges decide on a unified trading platform.”

  More than US$30 billion in exchange mergers have been proposed worldwide since October last year. Cross-border deals have met resistance from shareholders and regulators.

  Australia blocked Singapore Exchange Ltd’s bid for ASX Ltd on national interest grounds. A shareholder-approved merger between NYSE Euronext and Deutsche Boerse AG faces an anti-trust complaint from the European Commission. The complaint says the combined company would monopolize derivatives trading, according to a person familiar with the matter.

  London Stock Exchange’s offer for Toronto-based TMX Group Inc was withdrawn because too few owners supported it. TMX’s board last month endorsed a rival bid from a group of Canadian banks and pension funds that seeks to merge TMX with two domestic trading platforms.

  “Exchanges are consolidating,” said Ichizo Yamauchi, principal executive officer at Tokyo-based Kokusai Asset Management Co. “In that context, a merger between Tokyo and Osaka is an inevitable development.”

  Tokyo Stock Exchange is valued between US$1.89 billion and US$2.52 billion, 1.5 to 2 times more than Osaka, which had a market capitalization of ￥98.6 billion at the end of last week, the Nikkei said. Added to Osaka’s market capitalization as of Friday, the combined company would have a value of US$3.15 billion to US$3.78 billion, the data show. That’s more than Chicago-based Chicago Board Options Exchange at US$2.46 billion and smaller than London Stock Exchange at US$3.79 billion.

  Overseas investors made 61 percent of the trades on Japan’s top three exchanges in the week ended Oct. 28, according to TSE data. The Nagoya Stock Exchange is the country’s third-biggest bourse.

  “In the current set-up, intensifying competition in terms of pricing and liquidity means that foreign investors will be moving their orders to Hong Kong or Singapore,” Yamauchi said. “There’s the danger that Japan will become a local market.”
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