LME Agrees to Sale to Hong Kong Exchange

The board of London Metal Exchange Holdings Ltd., the parent company of the London Metal Exchange Ltd. (LME), says it has entered into a framework agreement to accept a cash offer for its sale to Hong Kong-based HK Investment (UK) Limited (HKEx Investment) and Hong Kong Exchanges and Clearing Ltd. (HKEx).

According to an LME news release, the offer is “for the entire issued and outstanding ordinary share capital of LME Holdings by HKEx Investment.” As of June 15, the expected value of the transaction is £1.39 million ($2.16 million).

The LME’s board of directors has recommended “that the holders of ordinary shares of LME Holdings vote in favor of the transaction at the Ordinary Shareholder meetings expected to be convened before the end of July 2012.”

Under the terms of the offer, HKEx Investment will acquire the entire issued and outstanding ordinary share capital of LME Holdings “and each ordinary shareholder will receive £107.60 (US$167.66) per LME ordinary share in cash.”

“This proposed combination will secure the future of the LME for its next 135 year,” says Martin Abbott, CEO of LME Holdings and the LME. “The LME's global benchmarks, plus HKEx’s pre-eminent market position in Asia, its information technology and trading resources and clearing expertise will cement the LME's position as the world's foremost base metals trading venue.”

“The acquisition of LME Holdings represents a unique opportunity for us to acquire in one stroke a position of global leadership in the commodities market,” says Charles Li, CEO of HKEx. “This is consistent with our strategy to expand beyond equities and equity derivatives and offers significant opportunities for revenue growth. HKEx brings a unique ability to help the LME grow its business in Asia and, particularly, China, and we will capitalize on this to deliver value for all our stakeholders. We are looking forward to working with the team at the LME to achieve these objectives.”

In its news release, the LME says the transation:

• Brings together the LME, a nonferrous base metals exchange trading venue, with an operator of exchanges and clearinghouses in Asia;
• Preserves the LME’s business model, including the operation of the “Ring” (open outcry trading), daily prompt date contract structure, existing membership structure and capacity for warehousing and physical delivery, which contribute to the LME’s position as a leading price formation venue for nonferrous base metals;
• Provides a platform for significant long-term growth through the expansion of the LME’s business and operations in Asia and the Chinese market by leveraging HKEx’s resources, infrastructure and network in the region;
• Supports the development of LME’s clearinghouse, LME Clear, which will enable the LME to launch new products and services more efficiently by drawing on HKEx’s track record and experience in operating three clearinghouses;
• Enables the LME to leverage HKEx’s considerable IT expertise, infrastructure and resources to enhance its current IT platform;
• Accelerates HKEx’s strategy to develop its own commodity offering and to diversify its revenue sources.

In its mid-June news release, the LME says “it is expected that a circular containing and setting out, among other things, the full terms and conditions of the scheme and containing the notices convening the ordinary shareholder meetings will be posted to ordinary shareholders within approximately 15 business days of this announcement, ahead of the ordinary shareholder meetings to approve the transaction, which are expected to take place before the end of July 2012.”

A Bloomberg news report indicates that Intercontinental Exchange Inc. (ICE), a futures market operator based in New York, and HKEx, was the other contender in a bidding process that was announced by the LME in September 2011.