Tokyo Exchange Enters $30B Merger Wave

Tokyo Stock Exchange Group Inc.’s takeover of Osaka Securities Exchange Co. marks its entry into a global wave of mergers that has seen $30 billion in proposed acquisitions over the last 13 months.

TSE offered 480,000 yen a share for its smaller rival, a 14 percent premium to Osaka’s close the previous day and 23 percent above its average price since the talks were announced March 10, according to data compiled by Bloomberg. Osaka Securities, whose derivatives platform hosts Nikkei 225 Stock Average futures, rose 4.6 percent to 440,500 yen. The offer implies the bourse is worth 129.6 billion yen ($1.68 billion).

Two decades of slowing growth and recession have reduced the value of Japanese stocks since the market peaked in December 1989. The country lost its place as the world’s second-largest equity market to China in 2008 and hosted less than 1 percent of global initial public offerings this year.

“It will make the combined entity a weighty partner in future cross-border deal discussions,” said Sam Hilton, a Hong Kong-based exchange analyst at Keefe Bruyette & Woods Asia.

Tokyo’s exchange, home to Sony Corp. and Toyota Motor Corp. (7203), will buy between 50 percent and 66.67 percent of Osaka’s outstanding stock. The stock hit a high for the year of 482,500 yen on Feb. 18.
‘Eroded Presence’

“The presence of Japan’s market has greatly eroded,” said OSE’s President and Chief Executive Officer Michio Yoneda at a press briefing in Tokyo yesterday. “We would like to be in full force as a global exchange in the 21st century.”

Tokyo’s Topix Index slumped 75 percent through yesterday from a December 1989 peak. As of Nov. 22, Chinese shares were priced at $3.50 trillion, compared with $3.43 trillion for Japan, according to data compiled by Bloomberg.

The merged company, tentatively called the Japan Exchange Group, will have four separate businesses operating a cash equity market, a derivatives venue, a regulatory unit and a clearing company, according to the bid document. The new structure will save 7 billion yen a year and increase revenue by offering improved services, the release said.

TSE President and Chief Executive Officer Atsushi Saito will be made CEO of the Tokyo-based company, while Osaka’s Yoneda will be chief operating officer. Japan’s Fair Trade Commission is expected to begin reviewing the proposed deal next month, according to the statement.
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