The historic SGX Baltic Exchange deal

Singapore Exchange Ltd (SGX) plans to buy one of London’s oldest institutions, the Baltic Exchange where shipping rates are published, and urged shareholders on Thursday to support a deal.

As the global shipping industry struggles with the worst market conditions for decades, SGX offered shareholders in the privately-owned Baltic Exchange 160.41 pounds in cash per share, for a total 77.6 million pounds ($102 million).

Founded in 1744 as a forum for chartering vessels, the Baltic Exchange now produces benchmark indexes for global shipping rates and owns a trading platform for the multi-billion dollar freight derivatives market.

The Singapore Exchange, started in 1999, is making its offer as freight costs wallow at record lows, after a slump in commodity markets coincided with an increase in the number of vessels.

SGX said it “contemplated” that Baltic shareholders would also receive at least 18.80 pounds in cash per share from the Baltic Exchange as a final dividend if the deal went ahead, giving a minimum total valuation of 86.7 million pounds or just over $113 million.

“SGX has agreed with the Baltic Exchange … to proceed with the solicitation of support from shareholders,” it said, emphasising that the deal had yet to be finalised and there was no assurance of a definitive agreement.

On Tuesday, Reuters cited sources as saying SGX was preparing a formal offer for the Baltic following months of discussions that culminated in exclusive talks. Sources had told Reuters the deal was priced at $100 million.

The Baltic Exchange said on Thursday that it would consult major shareholders to seek their support for SGX’s offer.

“Subject to receiving sufficient support, and to it receiving the endorsement of the Baltic Exchange board, it is expected that a scheme of arrangement will then be circulated to shareholders and a general meeting will be announced, for shareholders to vote on an offer from SGX,” the Baltic Exchange said in a statement.

A Baltic spokesman said such a meeting would not take place before September.

On May 25, the two sides said SGX was in exclusive talks, subsequently extended until Aug. 31.

The Baltic is owned by about 380 shareholders, many from the shipping industry including ship brokers, companies and individuals, and a majority will need to approve any acquisition.

“The exclusivity period is designed to make sure the entire process doesn’t last forever,” one source said.

“Everything is proceeding on track. The ball is now in Baltic’s court.”

Another source said: “The emphasis is on the ‘solicitation’ of support by SGX. There is still no clear indication at the moment whether there will be enough to push it through. Pricing will also be a factor.”

SGX would benefit from a drop in the value of the pound. Sterling fell 14 percent against the dollar after Britain’s vote in June to leave the European Union, although it has since recovered around 3 percent.

Sources say any deal is unlikely to be affected by Brexit. SGX is looking to expand its global presence in shipping and has been developing Asian pricing benchmarks for commodities such as iron ore, liquefied natural gas and coking coal.

SGX has recently come under criticism after a string of trading disruptions.

Separately a planned $28 billion merger between the London Stock Exchange and Deutsche Boerse has won backing from shareholders of both companies, although it remains unclear whether the deal will get regulatory approval.

The Baltic Exchange has been located in the heart of the City of London since its founding in a coffee house. Its later flagship building was blown up in a 1992 attack by the Irish Republican Army and the Gherkin tower now stands on the site.

In February, the Baltic confirmed it had received a number of “exploratory approaches” after SGX said it was seeking to buy it.

The London Metal Exchange, CME Group, ICE , state-run conglomerate China Merchants Group and Platts were among other potential bidders, sources told Reuters previously.

Source: Reuters


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