London Metal Exchange shareholders approved the $2.2 billion takeover offer from Hong Kong Exchanges & Clearing Ltd., ending a 10-month contest.
The vote in London yesterday was more than 99 percent in favor, said Chris Evans, a spokesman for the LME. The board backed the proposal June 15 after offers from rivals including CME Group Inc. (CME:US), Intercontinental Exchange Inc. and NYSE Euronext. (NYX:US) The proposal needed the backing of more than 50 percent of shareholders and owners controlling at least 75 percent of the stock in the 135-year-old exchange.
Hong Kong Exchanges is buying a bourse handling more than 80 percent of world trade in industrial-metal futures, setting global prices for metals from copper to aluminum to nickel. It is the first overseas acquisition for the Asian bourse, the world’s second-biggest exchange by market value, and its first contracts in commodities. LME members may get more access to China, which consumes more metal than any other nation.
“This is now the beginning of something new for the exchange,” said Martin Abbott, chief executive officer of the LME. “What we’ve got now is even more resources and even more opportunity.”
Metals prices more than tripled in the past decade as demand from emerging markets overwhelmed supplies from mines. The LME, home to London’s last open-outcry trading, handled a record $15.4 trillion of contracts last year. Hong Kong Exchanges closed little changed at HK$101.60 yesterday, leaving the shares down 30 percent since Feb. 18, when the South China Morning Post reported the bid.
The exchange is owned by LME Holdings Ltd., which issues two classes of stock. There are 12.9 million ordinary shares, which confer ownership and traded at 4.925 pounds last July, before the LME said it was considering bids. Hong Kong Exchanges offered 107.60 pounds a share. JPMorgan Chase & Co. (JPM:US) and Goldman Sachs Group Inc. (GS:US) are the biggest investors, with closely held Metdist Ltd. the third largest, LME data show.
The bourse will continue to be regulated by the Financial Services Authority. Final approval is expected in November, Abbott said.
“The price is obviously good, but there is also sufficient reassurance for the members about business model and great growth opportunities,” LME Chairman Brian Bender told reporters. While “there is the formality of the FSA,” the U.K. regulator has raised no “red flag” so far, he said.
The LME has 70 shareholders, according to its website. At Hong Kong Exchanges’ offered price, JPMorgan’s stake is valued at 150.6 million pounds and Goldman’s 132.3 million pounds. Other investors include UBS AG, Barclays Plc, Deutsche Bank AG and Sucden Financial Ltd.
Sixty-seven stockholders controlling 12.86 million shares voted on the transaction at a so-called court meeting, with 64 owners holding 12.82 million shares backing the bid. In a separate tally at an extraordinary general meeting, 12.75 million shares, or 99.24 percent, were voted for the sale and 98,000 against.
INTL FCStone Inc. voted against the takeover, Philip Smith, CEO for Europe, Middle East and Africa, said by phone. The New York-based financial-services company holds 50,000 shares.
“We said all along that the commercial value of our business far outweighs the shareholding,” Smith said. “A lot of our clients were concerned and said they didn’t want any change. We had to listen to them.”
Mining companies Rio Tinto Group and Codelco, stainless steelmaker Outokumpu Oyj, commodity trader Glencore International Plc (GLEN) and aluminum producer Norsk Hydro ASA are among 31 metals producers, users and merchants that control a combined stake of 4.2 percent in the U.K. exchange.
“It’s an end of one era and start of a new one,” Michael Overlander, Sucden’s CEO and an LME director, told reporters in London. “I’m very happy to see it to be supported in such an overwhelming fashion.”
Hong Kong Exchanges 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 freeze trading fees until at least the start of 2015.
“The LME is a great platform for commodities trading, and there are a lot of synergies HKEx can bring forward,” said Dominic Chan, an analyst at BNP Paribas SA in Hong Kong who predicts stock in the Asian exchange will trade at HK$155.88 in 12 months. “This is a win-win situation longer term.”
A takeover by Hong Kong Exchanges may help the LME win more clients in mainland China, register warehouses in the country and clear products denominated in yuan, Bender said in a letter to shareholders July 9.
“It’s a clear vote, and we hope that the future of the LME is as good,” Gabriela Grillo, managing director of Duisburg, Germany-based trading company Wilhelm Grillo Handelsgesellschaft mbH, told reporters.
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