Deal premium, large cash component, residual EPS synergies to Singapore Exchange (S68.SG) leads to the view that ASX (ASX.AU) takeover “compelling proposition relative to ASX’s standalone prospects,” says Goldman Sachs.

 

But says trade-off for pleasingly large cash component is surprisingly high gearing ratio for SGX post the deal of about 2.8x net debt to EBITDA post completion, giving a deal that’s “comfortable in cash flow coverage terms”, with cost of debt implied by the companies' pro forma accretion figure only 3.5%, but relatively high for a market-leveraged business and vs ASX's historical gearing tolerance. 

 

Adds while the companies have published pro forma FY10 EPS accretion figure of 20% and said that would rise to 26% after adding the cost synergies, using consensus EPS forecasts and full accrual of the target synergies the accretion to post-completion EPS will actually be about 19%, reflecting consensus expectations SGX will post much bigger jump in EPS in FY11 than ASX. Keeps ASX Buy recommendation, ups target to A$42.50 ($54.7) from A$35.50. 

 

ASX closed up 19.4% at A$41.75.