SGX buying out ASX

SGX buying out ASX is definitely one of the mega blockbuster acquisition for this year. Judging from paper, there is a lot of opportunities for synergy, the first and most obvious is the economies of scale that comes with such massive acquisition.

The access to capital provided to corporates if they raise their capital through the SGX-ASX entity would be tremendous. If this acquisition does take place successfully, the behemoth size would be able to suck a lot of investors and companies from the region to trade and raise capital through the exchange.

But before this acquisition takes place, there are many hurdles to clear and the biggest would be those coming from regulators. As of now there are a lot of opposing voices from the Australia politicians. Then there is also the large hurdle coming in the form of shareholders from both SGX and ASX.

For investors on both side, these are the things they need to think of.

1) What is the probability that the acquisition will take place?
2) If it take place how fast can SGX complete the acquisition?
3) How fast can SGX create the needed synergies to create value and justify the price it pays?
4) Is ASX worth the price that SGX offered?
5) Would it be possible that SGX might offer a higher price to persuade more stockholders of ASX to agree with the acquisition? (If such a scenario do come up, the dilution effect may hurt the current shareholders)

For investors, my suggestion is to read up on mergers and acquisition, understand what are the possible scenarios that can occur, its respective probabilities that it may occur and decide from there whether they should dispose the stock and when to dispose the stock. And if they decide to hold in which scenarios should they dispose the stocks if things go worse.

In the business world, finding examples of failed mergers and acquisitions are far easier than successful mergers and acquisition. Because in order to integrate a corporate entity into another entity, there are a million and one way it can go wrong for instance, system integration, assimilating two cultures together, the power struggles, the standardizing of policies and so on. All these would take a very long time and only after all these are completed successfully, then the talk of achieving synergy can occur.

So only time will tell if the acquisition would be successful.

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