From the June 01, 2012 issue of Futures Magazine • Subscribe!

LME board weighing bids

Metals auction

With privately negotiated strategic partnership type mergers falling by the wayside recently, the London Metals Exchange (LME)  has opened up the M&A process by openly courting bids. At least four exchanges have submitted bids to buy the LME in a bidding process that ended May 7. LME’s board then began a review of the bids, but officials have declined to give a timetable on how long it might continue.

Only Hong Kong Exchanges and Clearing Ltd. (HKeX) has confirmed that it was participating in the bidding process, but sources close to the bidding have said that other bids were entered by CME Group, NYSE Euronext and IntercontinentalExchange (ICE). LME has issued few details of the bids or process.

The 135-year-old LME operates a single open outcry trading floor in London, conducting twice daily “rings” with a dozen ring-dealing member companies accounting for more than 80% of global non-ferrous metals trading. The sale process was started last September with the hiring of U.S. investment bank Moelis & Co. to advise on the sale.

At least 75% of the LME’s 34 voting shareholder companies and 50% of the 92 members of the exchange must support a sale for it to go forward. Analysts have put the value of the exchange at around $1.3 billion.

“However, a price war among bidders could drive the price higher,” says Diego Perfumo with Equity Research Desk in Greenwich, Conn., although he adds that CME and ICE “should be opportunistic and not engage in a price war with HKeX.” 

Perfumo says it appears that China, as the largest consumer of metals, has identified the LME as a strategic asset and wants the HKeX to buy it. With a relatively higher currency from a higher price-to-earnings ratio, the HKeX is the top candidate to win the bid, he adds.

LME also recently has been making efforts to expand its position in Asia, including announcing its first Chinese member, BOCI Global Commodities, a unit of Bank of China Ltd., last month; opening its first Asian office in Singapore; launching contracts trading with the Singapore Exchange and reportedly nearing approval for a network of metal warehouses in China.

The metals exchange also had been surveying its members on whether to add settlement in China’s renminbi currency to euro and yen clearing, while dropping sterling clearing. LME base metals contracts are denominated in dollars but the alternative currency settlements and clearance are offered as an option. 

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