Exchanges deal to create bourse giant

The Tokyo Stock Exchange will take over its smaller rival in Osaka in 2013 to create the world’s third-biggest bourse with listed stocks worth $3.6 trillion (£2.29 trillion), aiming to build scale to cope with a weak home market and compete with a flurry of global tie-ups.
By The Newsroom
Published 23rd Nov 2011, 06:00 BST

The Tokyo Stock Exchange’s $1.7bn takeover of the Osaka Securities Exchange Co brings together two bourses that have operated separately for more than a century with the exception of a brief merger during World War II.

The Tokyo market controls more than 90 per cent of cash equity trading while Osaka, located in the economic centre of western Japan, draws the top volumes in Nikkei index futures and other derivatives.

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“This will create a well balanced exchange,” said Sadakazu Osaki, a senior researcher and exchange expert at Nomura Research Institute.

The combined value of stocks listed on the exchanges would trail only NYSE Euronext at $14.5 trillion and Nasdaq OMX Group at nearly $4 trillion, figures from the World Federation of Exchanges show.

Still, the new exchange lacks a strong international strategy, seen as an important factor for growth since its home market is mired in deflation and has suffered years of economic stagnation.

Globally, exchanges have announced $83bn of mergers and acquisitions over the past five years, rushing to cut costs and diversify in the face of dwindling revenues from the traditional stock trading business and new upstarts.

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“The global environment surrounding exchanges has changed dramatically, and the presence of the Japanese markets has been in decline,” said Michio Yoneda, chief executive officer of the OSE, said. “We are up against a big paradigm shift.”

The two said they would merge operations in January 2013 after the larger but unlisted TSE buys up to two-thirds of the listed Osaka exchange in a public tender offer. The tentative name for the merged entity is Japan Exchange Group.

The TSE will offer 480,000 yen per share, or a 14 per cent premium to Monday’s closing share price. The price values the Osaka bourse at 130 billion yen ($1.7bn).

The OSE will keep its listing as the surviving entity, though the combined firm would eventually look to re-list on the Tokyo exchange’s main board, allowing the TSE to recoup its takeover costs, Tokyo bourse CEO Atsushi Saito said.

The merger ratio values the TSE at roughly 1.7 times the OSE, implying a combined market value of 350 billion yen ($4.55bn).

Related topics:Japan