Hong Kong, Sept 3: The Stock Exchange of Hong Kong and The Hong Kong Futures Exchange Ltd on Friday released proposed terms for the merger of the two exchanges that valued the new entity well below current market ratings. Based on a cash offer for members' shares in the two exchanges of HK$3.88 a share and combined pro-forma earnings of HK$538.86 million ($69.39 million) for the year ended June 1999, the shares are valued at 7.69 times earnings, according to merger documents issued by the exchanges.This compares with a rating of 20 times for all listed Hong Kong companies at the end of June.
The merger proposal showed that at current prices the Australian Stock Exchange traded at a price/earnings multiple of 43.69 times its latest audited earnings and Swedish equities exchange OM Gruppen at 20.87 times.
The pro-forma combined net assets of the two exchanges that will form Hong Kong Exchanges and Clearing Ltd (HKEC) were HK$4.15 billion at the end of June or HK$3.89 per share.
The Stock Exchange ofHong Kong posted after-tax earnings of HK$251.8 million in the year to June and of HK$388.94 million in 1998 after taking an exceptional loss of HK$150.00 million. That exceptional item was the stock exchange's contribution to a compensation fund used in early 1998 to compensate customers of members that went bankrupt in the wake of the Asian financial crisis.
In the year ended June 1999, The Hong Kong Futures Exchange posted an operating surplus from ordinary activities of HK$155.42 million.
The merger document did not give a profit history for the futures exchange for prior years.
On the basis of the 929 Stock Exchange shares in issue, each Stock Exchange shareholder will be entitled to receive 805,000 shares in HKEC, the documents showed. This will yield a total of 747.84 million shares in HKEC. On the basis of the 230 Futures Exchange shares in issue, each Futures Exchange shareholder will be entitled to receive 1,393,500 shares in HKEC. This will yield a total of 320.51 million shares in HKEC.Under the proposals, shareholders of both exchanges may elect to receive HK$3.88 in cash per HKEC share in place of all or part of the HKEC shares to which they become entitled.
This is subject to an overall aggregate limit of HK$935.3 million for stock exchange shareholders and HK$400.8 million for futures exchange shareholders. If none of the shareholders elect to receive the cash option, a total of 1.07 billion shares in HKEC will be issued and the new merged exchange will be held 70 percent by stock exchange shareholder and 30 percent by futures exchange members.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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