On 22 November, the Tokyo Stock Exchange (TSE) and the Osaka Securities Exchange (OSE) finally announced their much-delayed merger – set for 1 January 2012 – against a backdrop of falling prices and volumes on both bourses.
The combined value of stocks on the two exchanges is currently around US$3.6 trillion, meaning the new Japan Exchange Group would leapfrog the London Stock Exchange to become the world’s third-largest bourse operator behind the US’s NYSE Euronext and Nasdaq OMX.
However, since talks began at the beginning of the year, trading volumes have fallen by just over a third on the two exchanges. With proprietary trading systems (PTSs) such as Japannext and Chi-X Japan taking share from the main exchanges, and even average price- to-book ratios of less than one for companies on the TSE first section failing to tempt investors back into the market, the bourses seem to have had little option but to act.
The protracted negotiations, described in a Wednesday editorial in business daily the Nikkei as, “the nine months that the two exchanges were wasting time arguing”, saw a number of proposals aired, including the smaller OSE taking over the unlisted Tokyo exchange and the TSE going public before making an offer for the OSE.
Discussions on the merger that began on 10 March were further delayed by the triple disasters that struck Japan the following day. Although direct negotiations between the two presidents reportedly began on 21 October, as recently as last week, OSE head, Michio Yoneda, was still saying that there were “many problems” regarding the takeover, and that “nothing has been decided yet”.
TSE president Atsushi Saito and Yoneda have now come to an agreement on a tender offer price ¥480,000 (US$6,230) per OSE share, a 14% premium on Monday’s closing price. The tender period is set to begin in summer of next year and the OSE is scheduled to remain listed on the JASDAQ after the takeover.
The TSE’s Saito is expected to be CEO of the new holding company, while the OSE’s Yoneda is expected to take on the role of COO. The company will have four divisions: a cash equity market (TSE), a derivatives venue (OSE), a self-regulation unit and a clearing organisation (Japan Securities Clearing Corporation). The holding company will be listed on both the Osaka and Tokyo exchanges.
The combined entity will deliver cost savings of ¥7 billion (US$90 million) annually once system integration is achieved, which will eventually translate into lower market participation costs, according to a joint statement by the exchanges.
The new exchange also promises to benefit brokers through “lower transaction costs by reduction of system investment and daily maintenance costs” and “increased revenue opportunities by investors’ higher trading activity levels”.
With foreign company listings and IPOs in Japan both way down from their peak levels, the combined entity will hope to attract more overseas capital, investors and traders to use Tokyo as a financial hub for Asia.
“We hope to have investors from around the world invest in Asia through the Japanese market,” said the TSE’s Saito at a press conference in Tokyo on Tuesday.
While the wave of cross-border mergers that has swept over bourses in Europe and the US has yet to be felt in Asia, alliances between exchanges in the region look set to strengthen.
News of the merger was not enough to cheer Tokyo markets in the face of ongoing global debt concerns: the Nikkei Stock Average fell 33.53 points on Tuesday to 8,314.74 – recording a year-to-date low for the second day in a row.
Japan’s markets were closed Wednesday for the Labor Thanksgiving national holiday.
Author: Gavin Blair