SGX has announced a takeover offer for ASX which will see each ASX shareholder receiving a mixture of cash and shares in the new combined entity.
Under the terms of the Scheme, ASX shareholders as at a record date to be determined will be paid, in relation to each ASX Share, a combination of:
• A$22.00 (approximately S$28.04) in cash (the “Cash Consideration”); and
• 3.473 new SGX Shares (the “Share Consideration”).
The aggregate value of the Share Consideration is S$5.8 billion (approximately A$4.6 billion), based on the last traded price of SGX Shares as at the Latest Practicable Date, and S$5.8 billion (approximately A$4.6 billion), based on the volume-weighted average price (“VWAP”) of SGX Shares transacted on the Latest Practicable Date.
Accordingly, the value of the aggregate consideration payable for the Proposed Combination (the “Scheme Consideration”), based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the last traded price of SGX Shares as at the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.7 billion), or approximately A$48.00 approximately S$61.17) for each ASX Share.
The value of the Scheme Consideration based on the aggregate Cash Consideration and the aggregate value of the Share Consideration (determined by reference to the VWAP of SGX Shares transacted on the Latest Practicable Date), is approximately A$8.4 billion (approximately S$10.8 billion).
The move will see SGX coughing up about S$4.9 billion in cash, which will inevitably see the combined entity take on between S$3-4 billion in debt. Depending on the cost of debt, we estimate that interest could cost SGX as much as $150 million a year, which will eat into earnings (and dividends!).
We have maintained that SGX looks terribly expensive at current levels, and it is fantastic that management can utilise the expensive stock to purchase a choice asset (ASX in this case) to benefit shareholders. However, the deal would have made much more sense if an all-stock offer was utilised. By offering cash and taking on debt, it appears that the EPS-accretion (as SGX touts the deal to be, EPS of $0.3008 to $0.3612) will be difficult to achieve after factoring in interest payments.