June 15 (Bloomberg) -- Hong Kong Exchanges & Clearing Ltd., host to the world’s fifth-largest equity market, agreed to pay 1.39 billion pounds ($2.15 billion) for the London Metal Exchange, which handles more than 80 percent of global trade in industrial-metal futures
LME investors will get 107.60 pounds per ordinary share in cash, with a vote scheduled before the end of next month, the bourses said today. The stock traded at 4.925 pounds in July 2011, before the LME said it was considering bids. JPMorgan Chase & Co., Goldman Sachs Group Inc. and closely held Metdist Ltd. are the biggest LME shareholders.
Hong Kong is the only place in China where investors can freely buy and sell shares in Industrial & Commercial Bank of China Ltd., the biggest lender by value, and PetroChina Co., Asia’s largest company. The deal would be Hong Kong Exchanges’ first overseas acquisition. The 135-year-old LME sets global benchmark prices for metals including copper, aluminum and nickel, of which China consumes more than any other nation. Its network of warehouses doesn’t currently extend into the country.
“Hong Kong Exchanges can be positive for LME if it can enhance its China exposure,” said Jonas Kan, the head of Hong Kong research at Daiwa Capital Markets. “HKEx has a clearing business, visibility in listing for Chinese companies, and has experience working with regulators and authorities in China, which can add value to the LME.”
Buying the LME would give Hong Kong Exchanges its first commodities contracts. Shares of Hong Kong Exchanges retreated 23 percent since the South China Morning Post reported its bid Feb. 18. That compares with a 15 percent drop in the Bloomberg World Exchanges Index. Hong Kong Exchanges is paying with existing cash and new loans of at least 1.1 billion pounds.
“Their full potential will not be realized until they can tap the geography,” Charles Li, chief executive officer of Hong Kong Exchanges, said at a press conference in Hong Kong today. “They need China expertise. They need Asia expertise. And we have a lot of it.”
The LME management led by Martin Abbott, chief executive officer, will stay, Li said. “Given the magnitude of what we’re talking about here, clearly we will significantly augment the management structure.” Some people may be moved between Hong Kong and London and commodities experts hired, he said.