Singapore Exchange Ltd (SGX) is readying a formal offer to buy London's Baltic Exchange following months of discussions that culminated in exclusive talks between both parties, sources familiar with the matter said on Tuesday.
Founded in 1744, the privately-owned Baltic Exchange is no longer a forum for chartering vessels but owns benchmark indexes for global shipping rates and provides a trading platform for the multi-billion dollar freight derivatives market.
The sources said both sides had reached key milestones for a deal to proceed and that SGX was getting ready to make a formal offer.
The Baltic Exchange declined to comment, while an SGX spokeswoman referred to a May statement where it said both exchanges would benefit from new growth opportunities.
"There are certain elements of continuity and commitment that are important to ensure that the deal is on track," said one source, who declined to be identified.
On May 25, the two sides said SGX was in exclusive talks to buy the Baltic, which were subsequently extended until Aug. 31.
Sources have put the value of the potential deal in the region of $100 million.
The Baltic is owned by about 380 shareholders, many from the shipping industry and a majority will need to approve any acquisition. Their shares are estimated by market sources to be at least 10 times higher than they were a year ago.
'NO BREXIT IMPACT'
A purchase by SGX would boost its plans to diversify revenue streams at a time when it has been hit by sluggish equity listings and securities volumes.
It would also benefit from a drop in the value of the pound. Stirling fell 14 per cent against the dollar after Britain's vote in June to leave the European Union, but has since recovered almost 4 per cent.
Sources say any deal is unlikely to be affected by Brexit as 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.
The takeover talks come as the global shipping industry is struggling with the worst market conditions for decades after a slump in commodity markets coincided with an increase in the number of vessels, sending freight costs to record lows.
The Baltic's daily benchmark rates and indices are used to trade and settle freight contracts as well as data used in the freight derivatives or FFA market, which allow investors to take positions on freight rates in the future. The data is collected each day from 48 market players known as panelists.
A potential hiccup was whether enough panelists would agree to signing exclusivity for the data they contribute, which is seen as a key requirement for a deal.
When asked about discussions with panelists, a Baltic spokesman said the exchange was "pleased with the process".
The Baltic had set a deadline of July 29 for panelists to sign up, which it said last week would "facilitate the finalisation of an offer for the Baltic by SGX".
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 (0388.HK), CME Group (CME.O), ICE(ICE.N), state-run conglomerate China Merchants Group [CNMGP.UL]and Platts were among other potential bidders, sources told Reuters previously.