A buy out, sell out or a merger?
In very simplistic terms that a layman can understand, a buy out is done when one company pays another company, normally with a premium, and take over the other company, lock stock and barrel. In a sell out it is just the reverse. In the SGX/ASX case, SGX pays ASX shareholders a sum plus X premium dollars, and it ended up in a merger. So it is not a buy out and SGX does not take over ASX, or does it? In the case of a merger, normally both parties will make a valuation of the shares and use that as a basis to determine the number of shares each owns in the merged company. You don’t normally over value one against the other or pay a huge premium. Premium only applies to a buy out. The monetary consideration goes as follows. SGX values the ASX shares at A$48 a share, inclusive of a 37% premium. This will be paid in SGX shares at around 3.5 SGX shares for each ASX shares and another $22 in cash. That is what an ASX shareholders will end up with. After paying these shares and money, does SGX owns the new company and all of ASX? No? It is reported that the market cap of SGX is $7.86b while ASX is worth $6b. This deal is touted as a merger. An ASX shareholder will now own 3.5 SGX shares and still getting a cash of $22 or a total equivalent of 45% of the $8.2b payout. (Today it is reported as $11b based on the same A$8.4b) If this is so, this amount is enough to buy over half of the existing SGX shares in the SGX, which only has a market cap of $7.86b with some to spare. And the Australian share holders could own half of all the shares in SGX plus all the SGX shares in ASX. Am I wrong? What does SGX owns eventually after the payout, and what is the benefit to a SGX shareholder? If it is only a merger, then there is no need to pay a hefty 37% premium. If it is a buy out, I can agree to a premium though how big is the premium depends on many factors. So, is it a buyout or a merger?