Print | Share | Reprint

Tokyo Stock Exchange launches Osaka tender

by Laura Board | Published July 10, 2012 at 11:39 AM

Tokyo Stock Exchange Group Inc. held firm Tuesday, July 10 on the terms of its agreement to merge with Osaka Securities Exchange Co. Ltd., ignoring criticism that its offer is too low.

The unlisted bidder said it will offer ¥480,000 per share for up to two-thirds of Osaka Securities in a tender to run from Wednesday until Aug. 22. In line with the companies' November deal, Tokyo Stock Exchange will pay up to ¥86.4 billion ($1.1 billion) in total for the Osaka shares in the first stage of a complex fusion that will leave Osaka as the surviving entity, with the provisional new name of Japan Exchange Group Inc. The merged company would be the world's third-largest bourses operator, as measured by the value of the companies it hosts, and combine Tokyo Stock Exchange's historically strong cash equities position with Osaka Securities' expertise in derivatives.

Tokyo Stock Exchange said the agreement to merge arose from "a common recognition that a firm position within the domestic cash equities market and derivatives markets will be established and significant synergies ... will be created by combining the business of both companies, which have different areas of specialty, and which can complement each other, and by moving forward with system integration and any other matters."

Recent reports have suggested certain Osaka investors, including Fidelity Investments, are dissatisfied with the price offered for a company that is growing faster and commanding higher margins than its bidder. (Fidelity hasn't confirmed its opposition.)

In its 62-page document accompanying the launch of its offer, Tokyo Stock Exchange stressed that the price was endorsed by a raft of independent valuation providers and gave a lengthy account of the different methodology each bank used. The merger has been in the works since March 2011 and the price agreed on in the companies' Nov. 22 deal is 14% higher than Osaka Securities' Nov. 21 closing price.

Tokyo Stock Exchange's offer is 4.6% higher than Osaka Securities' Tuesday closing share price of ¥459,000 and values all Osaka Securities' equity at ¥129.6 billion.

The documentation released Tuesday showed that Osaka Securities' roster of leading shareholders was dominated by foreign investors, including State Street Corp., with 6.7%, and Deutsche Bank AG, with 3.9%, as of the end of March. The size of Fidelity's stake, which is reported to be more than 14%, wasn't clear.

Unlike Deutsche Börse AG's ill-fated $10 billion-odd takeover agreement with NYSE Euronext, or even the early stages of Maple Group Acquisition Corp.'s now promising-looking attempt to buy Toronto's TMX Group Inc. for about $3.8 billion, regulatory issues have never loomed large in the union, which the Japanese government hopes will rehabilitate Tokyo as a major financial hub.

The November deal cleared a largely notional hurdle last week when Japan's Fair Trade Commission endorsed the transaction.

Following the tender offer, both sets of shareholders will meet in the fall to approve the merger, which is expected to close Jan. 1, 2013.

If the deal proceeds according to plan, Tokyo Stock Exchange president and CEO Atsushi Saito will be CEO of Japan Exchange Group, while Osaka president Michio Yoneda will serve as chief operating officer.

Tokyo Stock Exchange was established in 1878. In 2000 it acquired the Hiroshima and Niigata exchanges, and a year later it demutualized. It postponed an initial public offering in 2005 and then again in 2009. Osaka's heritage dates to the late 1600s when the city became the center of Japan's rice trade. The exchange owns Tokyo-based Jasdaq Securities Exchange Inc. Mitsubishi UFJ Morgan Stanley Securities Co. Ltd., Nomura Securities Co. Ltd. and Daiwa Securities Capital Markets Co. Ltd. advised TSE on the tender offer price and the merger valuation.

Osaka's advisers on those matters were Goldman Sachs Japan Co. Ltd., SMBC Nikko Securities Inc. and Moelis & Co. UK LLP's Caroline Silver, Holger Vieten, William Gaunt and Nabeel Vilcassim.

TSE is also taking advice from JPMorgan Securities Japan Co. Ltd. and Nagashima Ohno & Tsunematsu and Davis Polk & Wardwell LLP. Osaka retained Merrill Lynch Japan Securities Co. Ltd. and Mizuho Securities Co. Ltd. and is taking counsel from Nishimura & Asahi, TMI Associates and a Sullivan & Cromwell LLP team led by Tokyo partner Izumi Akai.

Share:

Tags: M&A | Osaka Securities Exchange Co. Ltd | Tokyo Stock Exchange Group Inc.

Restructuring

Tokyo Stock Exchange launches Osaka tender

Free preview

Meet the journalists

Laura Board

International Editor

Movers & Shakers

Video

PE sponsors choose IPOs as market rises

Sectors