Bloomberg News

Two Parties Left in Race for LME as CME Said Removed

May 22, 2012

IntercontinentalExchange Inc. (ICE:US) and Hong Kong Exchanges & Clearing Ltd. are the two companies left bidding for the London Metal Exchange, the world’s biggest metals market, after the CME Group Inc. (CME:US) was said to be removed.

CME, the world’s biggest futures exchange, is no longer in the running to buy the LME, according to two people with direct knowledge of the matter, who declined to be identified because the information isn’t public. Two parties are still in the bidding process, according to an e-mailed statement from the bourse today, which didn’t name any companies.

Discussions with the two remaining bidders will “involve obtaining a detailed understanding of their plans for the future governance and operation of the market and the deliver-ability of their respective proposals, as well as the value offered,” the LME said in the statement. The process will continue over the coming weeks, the bourse said.

The LME, which traded $15.4 trillion of industrial metals contracts last year, received multiple proposals by the May 7 deadline for a takeover, the bourse said May 8. CME Group, NYSE Euronext, ICE and Hong Kong Exchanges made offers for the exchange, said seven people who declined to be identified. NYSE Euronext, the biggest U.S. exchange owner, said last week it was removed from the list of bidders.

Miriam Heywood, a spokeswoman for the LME, declined to comment on CME’s removal. Claire Miller, a spokeswoman for ICE in London, declined to comment. A call made to a Hong Kong Exchanges spokesman, outside of normal business hours, was not answered. Michael Shore, a CME Group spokesman, also declined to comment.

Net Income

The LME, which handles more than 80 percent of industrial metals futures, is valued at $1.3 billion and could get a higher price, according to Greenwich, Connecticut-based Equity Research Desk, an adviser to hedge funds. The bourse’s net income dropped 19 percent to 7.68 million pounds ($12.2 million) in 2011, it said last week. Revenue climbed 21 percent to 61.2 million pounds on expenses of 49.9 million pounds, up from 38.6 million pounds in 2010. The exchange isn’t planning to pay dividends.

Any bid will have to be approved by more than 50 percent of shareholders, with the owners of at least 75 percent of shares backing the move. The exchange is owned by more than 60 of its 94 members.

Diverse Membership

JPMorgan Chase & Co., Goldman Sachs Group Inc. and family- owned trading firm Metdist Ltd. are the three biggest shareholders. Owners such as Amalgamated Metal Trading Ltd., one of 12 dealers entitled to trade on the LME floor, trace their roots to the foundation of the 135-year-old exchange. Mining companies Rio Tinto Group and Codelco, stainless steelmaker Outokumpu Oyj (OUT1V) and Glencore International Plc (GLEN), the world’s largest publicly traded commodities supplier, all have shares.

“A major difficulty for any new owner will be managing the membership, which itself is very complex,” said Ruben Lee, chief executive officer of Oxford Finance Group, a London-based company specializing in financial and commodity markets. “To succeed, you need a very fine political dance through all the various needs of the different stakeholders. But in the end, money will be able to trump a lot of any difficulties that might arise.”

To contact the reporters on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net; Nandini Sukumar in London at nsukumar@bloomberg.net

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


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Companies Mentioned

  • ICE
    (Intercontinental Exchange Inc)
    • $184.4 USD
    • 0.95
    • 0.52%
  • CME
    (CME Group Inc/IL)
    • $70.49 USD
    • 0.36
    • 0.51%
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