Takeover Buzz For Stock Markets Spreads to Asia [WSJ]
By ANDREW MORSE
April 24, 2006; Page C1
TOKYO -- Exchange takeover mania has arrived in Asia, and it is practically at a fever pitch in Japan.
As Nasdaq Stock Market Inc. snapped up shares of London Stock Exchange PLC and news surfaced that other global exchanges and market operators have been in talks, the stocks of publicly traded Asian exchanges have started climbing on speculation that they, too, could become takeover or merger targets.
None have jumped as sharply as the Osaka Securities Exchange Co., Japan's No. 2 market behind the Tokyo Stock Exchange.
Over the past two months, OSE shares have almost doubled to 1.37 million yen ($11,718). Investors here are hoping Nasdaq or one of its competitors will try to build up a stake in the exchange to make inroads into the huge Japanese market, traders say.
The OSE is dwarfed by the Tokyo Stock Exchange, which accounts for 94% of all stock trading in the country. But TSE isn't publicly traded, which is why the mania is manifesting itself at the OSE. While it doesn't do nearly the business of its big brother, OSE lists a host of blue-chip stocks, including Toyota Motor Corp. and Canon Inc. And the total stock-market value of its listed companies is $3.2 trillion, compared with about $3.8 trillion for Nasdaq.
The OSE traces its roots to the 17th century, when it began as a rice exchange. In 1716, it developed one of the world's earliest markets, introducing futures contracts for rice trades. It continues to have a reputation for expertise in derivatives products.
The rise in OSE's share price underscores the expectation for further global-exchange consolidation.
Nasdaq earlier this month bought its 15% stake in LSE, which has already been the target of several takeover attempts. In 2000, three European stock exchanges merged into Amsterdam-based Euronext N.V., which now operates stock and futures markets in five countries. And a Dubai investment firm last week took a 1.3% stake in Euronext.
Hiroshi Ishii, an OSE spokesman, declined to comment on market speculation that OSE might be part of the industry's consolidation.
A person familiar with Nasdaq's thinking said the U.S. exchange isn't interested in doing a deal with or building up stakes in the OSE. But Nasdaq remains interested in Asia, especially as a source of more corporate listings, this person added. Also, Nasdaq has turned on a dime before: Its purchase of the LSE stake came just weeks after Nasdaq Chief Executive Bob Greifeld said he was focused on the U.S.
Expanding into Asia makes sense for internationally minded stock exchanges. The region is home to some of the world's fastest-growing economies, and companies in the huge region are anxious to tap the stock market for capital.
Asia is of course also essential for exchanges that want 24-hour capability as the business of buying and selling securities marches toward seamless global trading.
The OSE has already done business with Nasdaq: In 1999, the two teamed up to create a market for small, fast-growing companies. Though the Nasdaq pulled out of that deal, the market they create -- now called Hercules -- continues to attract start-up companies, including GungHo Online Entertainment Inc., a small Tokyo games developer, and MediciNova Inc., a San Diego-based biotech.
Mr. Ishii said the jump in the OSE's share price reflects optimism that Japan's stock market, spurred by a strong economy, will continue to rise and that the OSE will benefit from increased trading. Investors are also impressed with new technology the exchange introduced in February to speed trade execution, he added.
Just over 47% of OSE shares are held by foreign investors, who market observers noted are generally more willing to sell than Japanese holders. Boston-based mutual-fund giant Fidelity Investments controls nearly 10% of the stock.
To be sure, the relatively slow pace of business at the OSE could be a turn-off for a potential foreign suitor. Exchanges earn money from trading fees, and OSE stocks don't trade as frequently as those listed on the TSE. Also, while OSE companies collectively have a large market value, the 1,058 stocks listed there number less than half the total at the TSE.
But partnering with the OSE could still be attractive to an overseas exchange, because they could cross list each others stock and deepen the liquidity, or ease of trading, in their respective markets. And more trading in Osaka might encourage more companies to list there.
"Certainly, if you had an investment from one of the huge exchanges...it would attract people to trade" on the OSE, said Philippa Allen, managing director of ComplianceAsia Consulting Pte, which advises financial institutions on regulatory issues in Asia. |
