London Metal Exchange May Get Takeover Bid After Approaches
September 23, 2011, 4:09 PM EDTBy Nicholas Larkin and Agnieszka Troszkiewicz
(Updates with banker comment in fourth paragraph.)
Sept. 23 (Bloomberg) -- The London Metal Exchange, the 130 year-old exchange that says it handles 80 percent of global trade in metals futures, told members it may get a takeover offer after multiple approaches from potential bidders.
The board is being advised by U.S. investment bank Moelis & Co., Chief Executive Officer Martin Abbott said in a notice today to members. There are 92 members listed on the exchange’s website, including units of Goldman Sachs Group Inc., Barclays Plc and Citigroup Inc. LME Holdings Ltd., which owns London Metal Exchange Ltd., made net income of 9.5 million pounds ($14.7 million) on sales of 50.7 million pounds last year, according to a filing with Companies House in May.
Commodity prices jumped more than fourfold in the past decade, attracting a surge of interest from investors. The LME handled a record $11.6 trillion of contracts in copper and other industrial metals last year. CME Group Inc., the world’s largest futures market, bought the New York Mercantile Exchange for $7.6 billion in August 2008, while IntercontinentalExchange Inc. bought the New York Board of Trade in 2006 for $1.06 billion.
“The LME is an attractive asset class because it’s got an assured revenue stream, low fixed costs and growth options,” said Michael Rawlinson, a banker who is now head of resources at Liberum Capital Ltd. in London. “They’re started to diversify and they have new products, and all of this costs money.”
Ordinary Shares
LME Holdings issues both ordinary shares, which confer ownership, and B shares. There are 1.34 million B shares, which traded at 70 pounds in June, according to data on the exchange’s website. The shares traded at 25 pounds in June 2006.
There are 12.9 million ordinary shares and they exchanged hands at 4.925 pounds in July. London Metal Exchange Ltd. owns 3.27 million shares of LCH.Clearnet Group Ltd., according to its annual filing.
Brokers trade LME contracts through the bourse’s Select electronic platform, by telephone and through open outcry, where brokers carry out transactions in a 6-meter-wide (20-foot) trading ring. Its origins go back to the opening of the Royal Exchange in London in 1571 and more than 95 percent of its business now comes from overseas, according to its website.
“The London Metal Exchange has received several expressions of interest with regard to potential strategic transactions,” the bourse said in today’s statement. The exchange “will begin a formal process which may or may not lead to an acceptable offer for the company being received.”
Miriam Heywood, a spokeswoman for the exchange, declined to elaborate on the statement.
Ring Dealing
The LME’s 12 ring-dealing members are Amalgamated Metal Trading Ltd., Barclays, ED&F Man Commodity Advisors Ltd., JPMorgan Chase & Co., Marex Financial Ltd., Metdist Trading Ltd., MF Global UK Ltd., Natixis Commodity Markets Ltd., Newedge Group, Societe Generale SA, Sucden Financial Ltd and Triland Metals Ltd.
The LME is facing increased competition from other exchanges. Trading in contracts such as copper, aluminum and gold on the Shanghai Futures Exchange climbed 43 percent last year compared with the 7.4 percent jump on the LME. The LME started so-called mini-contracts in copper, aluminum and zinc in Singapore in February to take advantage of more demand in Asia.
The bourse last week said it hired Moelis and was considering proposals related to its clearing business. The LME said in May it may have self-clearing to replace current provider LCH.Clearnet as increased global regulation of derivatives boosts trading.
The LME delisted its plastics contracts five years after they were introduced, because of a lack of trading. It merged its Far East steel contract with the Mediterranean contract last year and suspended a silver contract in 2002.
--Editors: Claudia Carpenter, Nicholas Larkin
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.
