Bloomberg News

LME Says ‘Expressions of Interest’ Exceed 10, Board to Meet

September 29, 2011

(Updates with copper price in 16th paragraph.)

Sept. 29 (Bloomberg) -- The London Metal Exchange, the 134 year-old bourse handling 80 percent of global trade in metals futures, said it got more than 10 “expressions of interest” and may recommend a bid to shareholders as early as March.

The board meets tomorrow and directors will be updated on the potential buyers, Chief Executive Officer Martin Abbott said in an interview in London yesterday. The number of parties will probably increase and they will be given the first quarter to make a “credible bid,” he said. Shareholders may vote on an offer as soon as April, with 75 percent support needed for a bid to succeed, he said.

Goldman Sachs Group Inc., UBS AG, JPMorgan Chase & Co. and Sucden Financial Ltd. are among the biggest shareholders in the exchange. It operates London’s last open-outcry transactions through a 6-meter-wide (20-foot) ring in which traders shout out orders. Metals prices more than tripled in the past decade as demand from emerging markets overwhelmed supplies from mines, attracting a surge of interest from investors.

“We are utterly dominant in our space,” Abbott, 51, said from the bourse’s headquarters in Leadenhall Street, about a 10- minute walk from the Bank of England. “We’ve opened up and we’ve said there’s a process in place. That’s effectively an invitation for serious players to come and get involved.”

Share Classes

The exchange is owned by LME Holdings Ltd., which issues two share classes. There are 12.9 million ordinary shares, which confer ownership and traded at 4.925 pounds ($7.67) in July, according to data on the bourse’s website. There are also 1.34 million B shares, which exchanged hands at 85.425 pounds on Sept. 27. They had previously traded in July at 70 pounds. Neither shares trade on an exchange.

“Any valuation extrapolated from current data is wrong,” Abbott said. “Nobody currently values those shares on the basis that they reflect the underlying value of the business.”

The exchange as it stands today is worth 320.6 million pounds, according to estimates of Equity Research Desk in Greenwich, Connecticut, which advises hedge funds. That does not include any assumptions about the clearing business.

Metdist Ltd., a U.K. metals trading company, owns 912,000 ordinary shares, New York-based Goldman 900,000, and MF Global (U.K.) Ltd. 600,000, according to a filing made as of September 2010. UBS Ltd. is registered as holding 550,000 shares and Sucden 362,000. J.P. Morgan Metals Ltd. and J.P. Morgan Securities Ltd. have a combined 550,000 ordinary shares, while Metdist Trading Ltd. owns 300,000 shares.

No Dividend

Owners of B shares get no dividend and have no right to the profits or assets of the company, according to the articles of association. In the event of a distribution of assets, they are entitled to get the nominal value of the capital paid up on each share. They can’t attend company meetings unless changes to their rights are being considered. It is mandatory for four out of seven categories of membership to own the B shares.

The LME said in May it was considering creating its own clearing system. The bourse currently uses LCH.Clearnet Group Ltd., in which it owns 3.27 million shares. LME members may pay 10 million euros ($13.6 million) to 11 million euros in fees to LCH.Clearnet this year, Abbott said. The bourse handled a record $11.6 trillion of contracts in copper and other industrial metals last year, up from $2.5 trillion in 1999.

Clearing System

“Anyone who is preparing a bid for us is going to have to convince us that they have taken into account the likely value of us having a clearing system,” he said. Such a system would take about two years to set up, he said. Potential bidders will be given access to detailed financial information about the exchange in December, he said.

“As an exchange community, the LME members are lodging billions and billions of dollars of cash with the clearing house,” Abbott said. “It’s the return on investment on that cash that is the potentially major source of revenue.”

ICAP Plc Chief Executive Officer and founder Michael Spencer said in a conference call for journalists today that he would “look” at the exchange. London-based ICAP is the world’s largest broker of transactions between banks. ICAP Securities Ltd. is an associate broker clearing member of the LME, according to the LME website.

Bidders may include CME Group Inc., the world’s largest futures market, IntercontinentalExchange Inc. and Singapore Exchange Ltd., Niamh Alexander, an analyst at KBW Inc. in New York, wrote in a report Sept. 23. Officials from all three exchanges declined to comment. The LME is being advised by U.S. investment bank Moelis & Co.

Board Meeting

The LME directors are gathering tomorrow for the annual pre-LME Week board meeting, Abbott said. “I don’t think there is going to be any material development on Friday so I wouldn’t hold my breath,” he said. LME Week is the annual gathering in London of the global metals industry.

The LME index of six base metals traded on the exchange has tumbled 21 percent this year on concern that Europe’s sovereign- debt crisis may hurt global growth, reducing demand. Copper fell 1 percent at 2:29 p.m. in London.

Electronic trading accounted for 52 percent of LME volumes in September 2010, telephone-brokered transactions 27 percent and the remainder went through the ring. Prices used as a benchmark by metals producers, consumers and merchants are established during the second daily ring session.

Trading floors were already shut by the International Petroleum Exchange and the London International Financial Futures & Options Exchange. ICE Futures U.S. ended floor trading of commodities including cotton in 2008 after 128 years. “It’s too early to say whether or not we will set preconditions,” Abbott said.

“Our volumes are up almost 19 percent year on year,” Abbott said. “I could see why someone would decide this would be a good time to make an approach.”

--With assistance from Brett Foley and Tim Farrand in London. Editors: Claudia Carpenter, John Deane

To contact the reporter on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus