ASX Limited (ASX: ASX) has confirmed a report in today's Australian Financial Review that it is considering buying Link Market Services (Link) from private equity firm Pacific Equity Partners (PEP). Link provides share registry services and other share related services for over 1,000 ASX listed securities.
PEP is understood to want more than $1 billion for the business, and is also selling a 25% stake in American Stock Transfer & Trust Company (AST), with an option to buy another 25%. It's unclear whether ASX would also want to buy the 25% stake in AST as well as buying Link.
Computershare Limited (ASX: CPU), Advanced Share Registry Services (ASX: ASW), Security Transfer Registrars and Boardroom Pty Limited are the main providers of share registry services in Australia. Computershare leads the market with 60% of the ASX 50/ASX200 listed companies. The company's recent purchase of Shareowner Services in the US gives Computershare a combined 73% of the stocks listed on the Dow Jones Industrial Index, and 66% of stocks in the S&P 500 Index. It's unlikely that Computershare would make a bid for Link, as the bid would probably invoke the ire of Australia's Competition and Consumer Commission.
ASX Growth pains
Since the merger with the Singapore Stock Exchange was kyboshed by the Federal treasurer in April 2011, the ASX has been on the lookout for ways to increase its growth, including increasing limits of capital raisings for junior listed stocks. That proposal has met a hostile reception from many parts of the market, including The Motley Fool, on the grounds that it was likely to disadvantage retail investors.
To fund the purchase of Link, ASX would need to raise capital either through an equity raising or debt. As the ASX doesn't have any share registry services at present, I can't really see any synergy benefits from the purchase of Link. And at a price of over $1 billion for Link, which is reported to make about $100m in Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), appears very expensive.
Not happy, Jan
As an ASX shareholder, some of the moves the ASX is currently making are starting to worry me, and it increasingly appears that the company is going to make some sort of 'diworsification'. I'll be looking to sell my ASX shares, once the Motley Fool trading policy allows me.
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Motley Fool contributor Mike King owns shares in ASX. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.