Tuesday, April 24, 2007

Are we ready for a monopoly?

Shares of SMRT are expected to rise to a record on optimism Singapore's largest subway operator will be acquired by a rival after a report said ComfortDelGro Chairman Lim Jit Poh suggested a merger.

Lim's proposal followed the government’s suggestions on how to increase the use of public transport, local media reported.

“SMRT is being seen as the takeover target and investors are betting on a controlling premium should a bid materialize,” said Nicole Sze, investment analyst at Bank Julius Baer &Co in Singapore, which manages $360 billion worldwide. “A merger will also benefit ComfortDelGro because it gives them a virtual monopoly on land transport in Singapore.”

A merger would help the companies reduce costs by combining their routes and streamlining operations, resulting in the creation of the largest land-transport company in an island-state that's trying to optimize its limited land space as the population and industries expand. Singapore has one of the highest population densities in the world at more than 6,000 people per square kilometer.

Lim's other proposal was for one company to operate bus services and the other to run Singapore's subway system, local media reported.

“Ultimately, the model should be one that will provide good service to fully support the infrastructural needs of Singapore and its future developments,” SMRT said in a statement April 20. “Having operated trains and buses for over five years, we have grown to understand the synergistic benefits
of a multi-modal model, and this is our preferred mode.”

ComfortDelGro, which was formed from the union of Comfort Group and DelGro in 2003, is the operator of the world's second-largest fleet of buses, taxis and rental vehicles. Its SBS Transit unit operates the northeast train line in Singapore. SMRT also provides bus, taxi and charter services.

Singapore is attempting to encourage more people to travel via public transport to reduce congestion on its roads. The government’s goal is to increase the proportion of trips on public transport during the morning peak hour to 70 percent from 63 percent in the next 10 to 15 years.

“Singapore's a small market, so some sort of rationalization will strip costs and boost the bottom line,'' said Daphne Roth, vice president of equity research at ABN Amro Private Banking in Singapore. “There's no real competition anyway.”

Should we look forward to such a merger or be wary? Will a monopoly over land transport better Singapore’s public transport or will it give people another excuse to avoid public transport?