blow.n.gasket
12th Apr 2011, 03:32
Swan right to reject Singapore takeover of ASX
Peter Swan
From:The Australian (http://www.theaustralian.com.au/)
April 12, 2011 12:00AM
LAST week, Wayne Swan (no relation) said that he had provisionally "accepted unanimous advice" from the Foreign Investment Review Board to reject Singapore's bid to acquire the ASX because the takeover was contrary to Australia's national interests.
The Treasurer has not only confirmed his original decision but stated that Singapore government control of the ASX and loss of jobs were two important considerations in the rejection.
Importantly, he did not rule out a successful FIRB application from other potential ASX bidders.
New methodology based on failed bids and developed by Ron Masulis and myself reveals that Swan and FIRB are correct in surmising that the takeover (portrayed by the ASX as a merger) created no synergies and, in fact, negative economic effects.
The ASX fell by 4 per cent on the announcement and SGX rose by about 7 per cent, showing that failure resulted in a net wealth gain of about 3 per cent for the two entities of roughly equal value.
The market's verdict is that the takeover, had it gone ahead, would have destroyed wealth worth about 3 per cent of the combined exchange values, amounting to tens of millions of dollars.
FIRB lists six grounds for rejection. The bid does not pass muster on five of the six grounds.
l"An investor's operations are independent from the relevant foreign government."
This is the first and most important consideration. Singapore Exchange has a dominant shareholder (more than 23 per cent) in the Singapore government's sovereign wealth fund, Temasek, and various other major shareholders also controlled by Temasek.
While Temasek's stakes are technically non-voting, most commentators regard this as a veil. The chief executive of Temasek is Ho Ching, the Prime Minister's wife. There are numerous other connections between SGX, its regulator, the Monetary Authority of Singapore, the Singapore government and Singapore's ruling families.
A non-executive and independent director of SGX, Lee Hsien Yang, is the son of the former prime minister and brother of the current Prime Minister.
Not only must SGX do the government's bidding but so must reporters and newspapers.
l"An investor is subject to, and adheres to, the law and observes common standards of business behaviour."
This is not the case in Singapore. There is a form of crony/state capitalism in which the powerful can apparently do what they like. There is little evidence of the "rule of law".
For example, the initial takeover offer by SGX was leaked in Singapore before any official announcement, forcing the ASX to freeze trading and make a premature announcement. SGX together with its regulators are notorious for lax corporate governance and lack of transparency.
l "An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned."
This is certainly of concern as SGX is in partnership with the Chi-X Exchange and they have a major joint venture. Chi-X is likely the first cab off the rank to enter the Australian market in the near future. The close links between Chi-X and SGX are likely to have prevented effective competition should the ASX be acquired.
l"An investment may impact on Australian government revenue or other policies."
The only effective form of security market regulation derives from assisted self-regulation. ASIC's ability to regulate would be compromised if control shifted to Singapore. In fact, there is even a public deed stating all subsidiaries of the Singapore Exchange, of which the ASX would be one, are subject to direction from the Monetary Authority of Singapore.
l"An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community."
Both the Australian and Singaporean governments have announced plans for their respective exchanges to be the centrepiece for export of financial services and the setting up of regional financial hubs. Hence, there is direct conflict between the plans of the two governments. Movement of companies and headquarters to Singapore and a major loss of high-paid jobs is an inevitable consequence.
The Treasurer's rejection may have sent the wrong message to the world: "Australia is xenophobic and does not welcome foreign investment."
To send the right signal and to tell the world the ASX may be bought by OMX-Nasdaq, or any other efficient global operator, without political interference, it must
be announced that the 15 per cent share cap on ASX will be eliminated.
Peter Swan is professor of finance at the Australian School of Business, UNSW
Are the aspirations of Qantas' Board to undercut Australian workers by using overseas based Jetstar franchises about to come unstuck?
FIRB lists six grounds for rejection. The ASX bid does not pass muster on five of the six grounds. How many grounds does the Qantas Group's aspirations of Transmitting business to Jetstar and the off-shoring of that entity contain?
#l: "An investor's operations are independent from the relevant foreign government."
Well didn't Joyce swear at the Senate enquiry that the Jetstar operations were just franchises. They controled the Name but that's about all.They certainly didn't control the Safety mechanisim.
#2:"An investor is subject to, and adheres to, the law and observes common standards of business behaviour."
Well the Senate enquiry appears to show otherwise.
#3: "An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned."
Maybe not a problem ,despite the Qantas Group Juggernaught rolling forth through their off-shoring ambitions, they still can't increase market share!
#4:"An investment may impact on Australian government revenue or other policies."
The Qantas Group continues to set up overseas based shelf company's to circumvent Australian Labour Laws. One only needs to look at the Jetconnect operation and the expansion of "Tag" flying undertaken by forign crews working for Jetstar Asia and the expasion of this concept to thwart the expansion of Australian based labour.
Take this to the nth degree, what happens to the Australian Taxation base? Particularly if this precident set by Jetstar is allowed to migrate to the Australian mining Industry with it's predilection for fly-in, fly-out labour.
#5:"An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community."
See above, once the precident is set in stone to allow the wholesale off-shoring of jobs , what do you think happens to the domestic operation? expansion?, further work opportunities?, expansion of training schemes and apprenticeships?,
an increase in the Business and personal income tax base for Government ?
An interesting conundrum for Qantas and the Government.
Peter Swan
From:The Australian (http://www.theaustralian.com.au/)
April 12, 2011 12:00AM
LAST week, Wayne Swan (no relation) said that he had provisionally "accepted unanimous advice" from the Foreign Investment Review Board to reject Singapore's bid to acquire the ASX because the takeover was contrary to Australia's national interests.
The Treasurer has not only confirmed his original decision but stated that Singapore government control of the ASX and loss of jobs were two important considerations in the rejection.
Importantly, he did not rule out a successful FIRB application from other potential ASX bidders.
New methodology based on failed bids and developed by Ron Masulis and myself reveals that Swan and FIRB are correct in surmising that the takeover (portrayed by the ASX as a merger) created no synergies and, in fact, negative economic effects.
The ASX fell by 4 per cent on the announcement and SGX rose by about 7 per cent, showing that failure resulted in a net wealth gain of about 3 per cent for the two entities of roughly equal value.
The market's verdict is that the takeover, had it gone ahead, would have destroyed wealth worth about 3 per cent of the combined exchange values, amounting to tens of millions of dollars.
FIRB lists six grounds for rejection. The bid does not pass muster on five of the six grounds.
l"An investor's operations are independent from the relevant foreign government."
This is the first and most important consideration. Singapore Exchange has a dominant shareholder (more than 23 per cent) in the Singapore government's sovereign wealth fund, Temasek, and various other major shareholders also controlled by Temasek.
While Temasek's stakes are technically non-voting, most commentators regard this as a veil. The chief executive of Temasek is Ho Ching, the Prime Minister's wife. There are numerous other connections between SGX, its regulator, the Monetary Authority of Singapore, the Singapore government and Singapore's ruling families.
A non-executive and independent director of SGX, Lee Hsien Yang, is the son of the former prime minister and brother of the current Prime Minister.
Not only must SGX do the government's bidding but so must reporters and newspapers.
l"An investor is subject to, and adheres to, the law and observes common standards of business behaviour."
This is not the case in Singapore. There is a form of crony/state capitalism in which the powerful can apparently do what they like. There is little evidence of the "rule of law".
For example, the initial takeover offer by SGX was leaked in Singapore before any official announcement, forcing the ASX to freeze trading and make a premature announcement. SGX together with its regulators are notorious for lax corporate governance and lack of transparency.
l "An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned."
This is certainly of concern as SGX is in partnership with the Chi-X Exchange and they have a major joint venture. Chi-X is likely the first cab off the rank to enter the Australian market in the near future. The close links between Chi-X and SGX are likely to have prevented effective competition should the ASX be acquired.
l"An investment may impact on Australian government revenue or other policies."
The only effective form of security market regulation derives from assisted self-regulation. ASIC's ability to regulate would be compromised if control shifted to Singapore. In fact, there is even a public deed stating all subsidiaries of the Singapore Exchange, of which the ASX would be one, are subject to direction from the Monetary Authority of Singapore.
l"An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community."
Both the Australian and Singaporean governments have announced plans for their respective exchanges to be the centrepiece for export of financial services and the setting up of regional financial hubs. Hence, there is direct conflict between the plans of the two governments. Movement of companies and headquarters to Singapore and a major loss of high-paid jobs is an inevitable consequence.
The Treasurer's rejection may have sent the wrong message to the world: "Australia is xenophobic and does not welcome foreign investment."
To send the right signal and to tell the world the ASX may be bought by OMX-Nasdaq, or any other efficient global operator, without political interference, it must
be announced that the 15 per cent share cap on ASX will be eliminated.
Peter Swan is professor of finance at the Australian School of Business, UNSW
Are the aspirations of Qantas' Board to undercut Australian workers by using overseas based Jetstar franchises about to come unstuck?
FIRB lists six grounds for rejection. The ASX bid does not pass muster on five of the six grounds. How many grounds does the Qantas Group's aspirations of Transmitting business to Jetstar and the off-shoring of that entity contain?
#l: "An investor's operations are independent from the relevant foreign government."
Well didn't Joyce swear at the Senate enquiry that the Jetstar operations were just franchises. They controled the Name but that's about all.They certainly didn't control the Safety mechanisim.
#2:"An investor is subject to, and adheres to, the law and observes common standards of business behaviour."
Well the Senate enquiry appears to show otherwise.
#3: "An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned."
Maybe not a problem ,despite the Qantas Group Juggernaught rolling forth through their off-shoring ambitions, they still can't increase market share!
#4:"An investment may impact on Australian government revenue or other policies."
The Qantas Group continues to set up overseas based shelf company's to circumvent Australian Labour Laws. One only needs to look at the Jetconnect operation and the expansion of "Tag" flying undertaken by forign crews working for Jetstar Asia and the expasion of this concept to thwart the expansion of Australian based labour.
Take this to the nth degree, what happens to the Australian Taxation base? Particularly if this precident set by Jetstar is allowed to migrate to the Australian mining Industry with it's predilection for fly-in, fly-out labour.
#5:"An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community."
See above, once the precident is set in stone to allow the wholesale off-shoring of jobs , what do you think happens to the domestic operation? expansion?, further work opportunities?, expansion of training schemes and apprenticeships?,
an increase in the Business and personal income tax base for Government ?
An interesting conundrum for Qantas and the Government.