London & Singapore Bourses In $11.3 Billion Merger Talks: Report

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Europe’s oldest independent bourse, the London Stock Exchange Group (LSE), have entered into informal talks to merge with the Singapore Exchange (SGX), reported The Telegraph on Thursday, in a deal that could potentially form the third largest exchange group in the world in terms of trades.


Europe’s oldest independent bourse, the London Stock Exchange Group (LSE), have entered into informal talks to merge with the Singapore Exchange (SGX), reported The Telegraph on Thursday, in a deal that could potentially form the third largest exchange group in the world in terms of trades.

According to The Telegraph, LSE’s market capitalisation at present is around £2.8 billion ($4.4 billion), while SGX has a larger market capitalisation of £4.4 billion ($6.9 billion). Any merger as such would see combined trades of over $11.3 billion, which would put the exchange group just behind the NYSE Euronext and Nasdaq OMX in trade size.

But any deal is also likely to run into stiff regulatory and political opposition, said Reuters, especially given the complex nature of international tie-ups.

“The two boards will be super-cautious is considering any proposal given the history of failures,” said a source from the SGX, who requested anonymity.

[quote]”It is not impossible, but the regulatory challenges will stand in the way of any deal,” he said.[/quote]

Last year, the LSE had to pull out of a £4.2 billion merger with the Toronto stock exchange after running into regulatory problems. Additionally, the NYSE Euronext has also failed in its attempt to merge with Deutsche Borse – a deal that was scuppered by European regulators – while Singapore Exchange itself had difficulty buying the Australian stock exchange.

But the benefits of a merger are also clear.

“There will be synergies if there is any acquisition or merger as both of the exchanges work in different time zones,” told Leng Seng Choon, an analyst at broker DMG & Partners Securities Pte Ltd, to Reuters.

[quote] “They recently had this cross-border trading agreement which suggests they are on friendly terms.”[/quote]

Related: Stock Market Mergers: Steady Marriage or Failing Long Distance Relationships?

This month, the SGX and LSE also signed an agreement to allow the pair’s largest stocks to be traded on both bourses, increasing access for investors and boosting liquidity. This new “international board” is also believed to have sparked the idea of a merger, with the chief executives from both sides understood to have close ties.

While the structure of any potential merger is unclear, The Telegraph speculated that SGX would take over its British rival because of its larger market capitalisation.

Any deal however will require regulatory approval from both the European Union and Singapore authorities, as well as from LSE’s two largest shareholders – Qatar Investment Authority and Borse Dubai, who together own 35.6 percent.

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