3 Quick Things You Should Know About Singapore Exchange Limited’s Bid to Buy Baltic Exchange

Singapore’s bourse operator Singapore Exchange Limited  (SGX: S68) confirmed today that it has submitted a bid to buy the Baltic Exchange.

The non-binding bid is rumoured to be worth some £84 million (around S$165 million), according to sources cited by Reuters. The offer comes after the London Metals Exchange had also made an approach to buy Baltic Exchange. Other potential bidders for the Baltic Exchange were said to include CME Group and Intercontinental Exchange.

Here’re three things which investors may want to know about this bid:

  1. The Baltic Exchange is a privately owned company with an international community of 600 member firms. It deals mainly with market information for trading and settlement of physical and derivative shipping contracts.
  2. According to its latest annual report, Baltic Exchange recorded sales of £6 million and profit after tax of £1.34 million in its fiscal year ended 31 March 2015 (FY2015). This is an improvement from the revenue of £5.5 million and profit after tax of £0.9 million recorded in FY2014.
  3. This deal, if it goes through, could be a complement to Singapore Exchange’s derivatives-related business. To be sure, Singapore Exchange’s Derivatives segment had recorded S$295 million in revenue in the financial year ended 31 June 2015 (FY2015); this is summarised in the graph below. Therefore, the Baltic Exchange may not add much to Singapore Exchange’s current top-line or bottom-line.
    SGX business segment
    Source: Singapore Exchange’s earnings reports

Foolish takeaway

Singapore’s bourse operator also added the following note in its announcement regarding the bid:

“SGX wishes to emphasize that as discussions are still preliminary, there is no certainty or assurance that the Possible Transaction will materialise or that any definitive or binding agreement will result from such discussions.”

The deal is certainly within Singapore Exchange’s reach. The bourse operator had close to S$720 million in cash and equivalents, as of 31 December 2015. But, the question remains on what price Singapore Exchange would pay for the Baltic Exchange. As my fellow Fool David Kuo had noted to me, if the bid escalates into a bidding war among the four potential suitors, then consider backing the loser as it may be wise for a company to leave the bidding, rather than overpay for what is being offered.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.