Bloomberg News

CME Group Said to Submit Bid to Buy London Metal Exchange

February 28, 2012

(Updates with Hong Kong Exchanges in eighth paragraph.)

Feb. 17 (Bloomberg) -- CME Group Inc. has made a bid for the London Metal Exchange as the world’s largest metals futures market plans a meeting next week to consider offers, according to a person with knowledge of the situation.

The price CME Group offered wasn’t disclosed, said the person, who declined to be identified because negotiations are private. A purchase of the LME by Chicago-based CME Group would add to its metals that trade through the Comex, where futures based on gold, silver and copper are traded.

LME’s board will review the bids in a Feb. 23 meeting. LME Chief Executive Officer Martin Abbott had set Feb. 15 as a deadline for takeover bids that will be reviewed by a special committee. NYSE Euronext submitted an expression of interest in the LME, another person familiar with the matter said.

The main obstacle to any deal may be regulatory approval after the European Union earlier this month rejected the proposed merger of Deutsche Boerse AG and NYSE Euronext. In the past 15 months, $37 billion in proposed exchange industry takeovers failed.

The LME is considering ending its independence after record trading volumes attracted multiple bidders for the exchange that handles about 80 percent of global trade in metals futures. It may be valued at $1.3 billion, according to Diego Perfumo, an exchanges analyst at Equity Research Desk, a hedge-fund adviser in Greenwich, Connecticut.

Possible Buyers

Other bidders for the LME may include Deutsche Boerse, IntercontinentalExchange, and Hong Kong Exchanges and Clearing Ltd., according to Perfumo.

Chris Evans, a spokesman for the LME, and Robert Rendine of NYSE Euronext declined to comment. Michael Shore, a CME Group spokesman, said the company doesn’t discuss rumors and speculation. The Financial Times reported NYSE Euronext’s interest in the LME, citing people familiar with the matter. Carolyn Lim, a spokeswoman for the Singapore Exchange Ltd., said the exchange doesn’t comment on media reports or market speculation when asked if it submitted a bid.

Frank Herkenhoff, a spokesman for Deutsche Boerse in Frankfurt, and Scott Sapp, a spokesman for Hong Kong Exchanges, declined to comment.

Nybot Example

Atlanta-based ICE, owner of ICE Futures Europe exchange in London, would bring “the most to the table” if it acquires the LME, according to KBW Inc. in New York. ICE could bring LME’s clearing activity in-house and add more electronic trading in the same way it did after its acquisition of the New York Board of Trade in 2007, Niamh Alexander, an analyst at KBW, said in a report dated today.

“Within the two years of acquiring Nybot, ICE had moved the majority of that soft commodity complex volume onto screens, effected fee increases and brought the products into its own central clearing house which also boosted revenue on the platform,” Alexander said.

Claire Miller, a spokeswoman for ICE in London, declined to comment.

The LME has operated independently since it started trading tin and copper in 1877, later adding other non-ferrous metals such as aluminum, nickel, zinc and lead, minor metals including cobalt and steel contracts. Since Abbott’s appointment in 2006, the volume of transactions increased 69 percent and their combined value advanced 90 percent, as a decade-long bull market in commodities accelerated. The LME index of aluminum, zinc, copper, tin and lead has climbed 8.7 percent this year.

Goldman, Citigroup

The LME, owned by its members including Goldman Sachs Group Inc., Barclays Plc and Citigroup Inc., handled $15.4 trillion of contracts last year.

“We didn’t put ourselves up for sale and we’re not trying to be sold,” Abbott, 51, said in an interview Feb. 8 at his office. “We can’t stop people coming and offering us money. We have an obligation to show those bids to the shareholders, but that doesn’t mean that we’re for sale.”

CME Group, the world’s largest futures market controlling about 98 percent of U.S. trading, is the product of some of the largest exchange consolidations. The Chicago Mercantile Exchange’s $9.6 billion purchase of the Chicago Board of Trade in 2007 created CME Group, which then acquired the New York Mercantile Exchange for $7.6 billion in 2008.

--With assistance from Nina Mehta in New York, Jonathan Burgos in Singapore, Kana Nishizawa in Hong Kong and Nandini Sukumar in London. Editors: Claudia Carpenter,

To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Nick Baker at nbaker7@bloomberg.net


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