NZX takes grab at Australian foothold

While its bid to set up a low-cost rival to the ASX still faces frustrating delays, New Zealand sharemarket operator NZX is making a grab for small Australian market company NSX which possesses two elusive market licences.

If it succeeds, NZX will likely look to fill a gap in the Australian market for a retail debt exchange and may also develop opportunities for New Zealand companies to obtain low-cost Australian listings.

But NZX may need the support of NSX's 13.2 per cent shareholder Guinness Peat Group if its acquisition is to proceed - and GPG's Australian chief, Gary Weiss, says NZX's offer is not compelling.

Melbourne-based NSX's board yesterday recommended to shareholders NZX's offer to acquire 50.1 per cent of the business through the purchase of 78.5 million new shares issued at A15c (19c) each for a total consideration of A$11.78 million. The cash will be used to recapitalise the company with none going to existing shareholders.

NZX chief executive Mark Weldon said his company was "well positioned to create a significantly improved earnings outlook for NSX, and to execute a growth strategy at a low marginal cost that will materially grow the value of NSX to the benefit of both NZX and NSX shareholders".

NZX has for some time been seeking to establish a low-cost, high-speed equities trading platform in Australia in competition with the incumbent ASX through its AXE ECN joint venture with top investment banks.

Originally scheduled to begin business in early 2007, AXE ECN is still waiting for Government sign-off on its market licence application.

NZX head of markets Geoff Brown told the Business Herald NSX's appeal lay in the fact it was an established market operator with two licences, connections to brokers and access to the ASX's CHESS clearing and settlement system.

There was also a possibility NZX's licences and rules could be altered "to look at a number of initiatives to grow the revenues of this as a business".

NZX had "proven exchange experience and expertise" in developing markets such as a listed debt exchange of scale like the NZDX, which Australia currently lacked, Brown said.

"I would personally think that's a great opportunity to look to develop."

The development of a transtasman single economic market could also potentially generate some "serious revenues".

Brown said New Zealand companies wishing to list in Australia were currently obliged by the ASX to obtain a relatively expensive full listing.

NSX could potentially run an overseas listings platform similar to NZX's "which would then have you listed and traded on an Australian exchange".

Brown said NZX had been eyeing NSX for some time but a boardroom stoush had finally created a chance.

"We felt there was an opportunity for shareholders to consider a number of options and in reality believe that at the end of the day they are faced with some reasonably stark choices."

Approval from 75 per cent of NSX shareholders is required to repeal a clause in the company's constitution preventing any single shareholder exceeding 15 per cent.

But NZX may face competition from 14.66 per cent shareholder Brian Price, who is starting up a financial and energy derivatives exchange business. Price wants an ally, Ann Bowering, appointed to the board. Should he oppose NZX's offer, the New Zealand company will need GPG's support.

NZX shares closed 1c higher at $7.74 yesterday. NSX's ASX-listed shares, which came out of a trading halt after the NZX announcement, rose A6c higher to close A9c above the NZX offer price at A24c.

ABOUT NSX
* It operates the National Stock Exchange of Australia and the Bendigo Stock Exchange.
* More than 130 companies are listed on the two markets with a combined capitalisation of over A$1 billion ($1.27 billion).
* It has also established a market for the trading of Victorian taxi licences.
* It operates Australia's largest independent water market, the Waterexchange.
* It is itself ASX listed.