The London Metal Exchange’s $2.2 billion takeover by Hong Kong Exchanges & Clearing Ltd. won approval by the Financial Services Authority, the U.K.’s regulator.
The acquisition still needs approval of the High Court of England and Wales, with a hearing set Dec. 5, Hong Kong Exchanges said in a statement on its website yesterday. The transaction will take effect on or about Dec. 6, the LME said in a separate statement.
The LME backed Hong Kong Exchanges’ offer on June 15 over bids from rivals CME Group Inc., Intercontinental Exchange Inc. and NYSE Euronext. Shareholders of the LME approved the takeover a month later. The LME handles more than 80 percent of metals trading, and Hong Kong Exchanges may be able to help the exchange gain access in China, the biggest metals buyer.
“This is what we’ve been waiting on,” Thomas Monaco, an analyst at Mizuho Securities Asia Ltd. in Hong Kong, said in a telephone interview. “It’s a little later than we would have thought, probably about a month or so.”
Hong Kong Exchanges plans to sell about $800 million of shares at HK$116.10 to HK$119 each, according to a term sheet obtained by Bloomberg News. The share sale will help fund the LME takeover. They closed at HK$124.80 yesterday. The exchange also sold $500 million in convertible bonds in September for the deal. They have an initial conversion price of HK$160 a share.
The offer was priced at 181 times LME’s 2011 net income, making it the most expensive bourse merger over $1 billion. The deal doesn’t need approval from Hong Kong Exchanges’ shareholders. It is the first overseas acquisition for the Asian bourse, the world’s second-biggest exchange by market value, and will add its first contracts in commodities.
Shareholders of the Tokyo and Osaka stock exchanges on Nov. 20 approved the merger of Japan’s two largest bourses. Japan’s government wants to create a national exchange handling equities, commodities and other securities to help balance the rise of the Chinese markets. Singapore Exchange Ltd.’s $8.3 billion bid for Sydney-based ASX Ltd. was blocked in April 2011 by Australia’s government on national interest grounds.
Shares of Hong Kong Exchanges have dropped 14 percent since its offer for the LME was reported in February. The benchmark Bloomberg World Exchanges Index of global bourse operators has fallen about 9 percent in the same period. The stock hit this year’s low of HK$100 on July 26 after LME shareholders approved the merger.
Metals prices more than tripled in the past decade as demand from emerging markets overwhelmed supplies from mines. The LME handled a record $15.4 trillion of contracts last year. The 135-years old exchange sets global prices for metals from copper to aluminum to nickel.
Hong Kong Exchanges, which lost its place as the world’s biggest exchange operator by market value to CME Group, is seeking to broaden its business as the pipeline of large initial public offerings from China slows and equity volumes fall. The bourse agreed to maintain the LME’s contract structure and open- outcry trading, conducted at the bourse on Leadenhall Street in London’s financial district.
The Asian exchange also will keep the existing warehousing network, help the LME develop its own clearinghouse and hold trading fees until at least the start of 2015. It will seek to bring “a lot more volume” to the LME and may help the LME to set up warehouses in China, reduce trading restrictions in China, or even expand operations to Asian hours and clearing contracts in yuan, Charles Li, Hong Kong Exchanges chief executive officer, said Oct. 15.
As a second stage, Hong Kong Exchanges may expand the LME into trading iron ore, freight, coking coal and even agricultural products, including rubber, as part of the next stage of growth after the acquisition, Li said.
Chris Hamilton, a spokesman for the FSA, confirmed the FSA has approved change in control of the LME.