London Metal Exchange considers takeover approaches

LONDON Fri Sep 23, 2011 11:23pm BST

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LONDON (Reuters) - The 134-year old London Metal Exchange restoked a global merger frenzy among bourses on Friday when it said it is considering a sale after receiving "several expressions of interest."

LME, the world's biggest market for industrial metals, declined to identify its suitors. But speculation immediately turned to U.S.-based IntercontinentalExchange (ICE.N) and the London Stock Exchange (LSE.L) as potential bidders.

Any deal would come as commodity trading volumes hit record highs, and could refresh a wave of exchange-industry consolidation that crested earlier this year.

"I'm not surprised (at the approaches) because obviously the LME is very good at what it does, it's preeminent, it has first-mover advantage and I could see that being attractive to another futures exchange," said Robin Bhar, an analyst at Credit Agricole.

The LME was established back in 1877 above a hat shop in Lombard Court, and is now one of the last bastions of open outcry trading. Trading houses and banks that use the market also own it.

Other possible bidders are the Singapore Exchange (SGXL.SI) and Hong Kong exchange (0388.HK), analysts said. CME Group Inc (CME.O), the largest futures exchange in the United States, has in recent months appeared to distance itself from a takeover.

CME Chief Financial Officer James Parisi said on September 13 the company has "no significant M&A in our immediate future," and a CME spokesman on Friday said it does not comment on rumors

or speculation.

ICE also declined to comment.

The LME said it was being advised by investment bank Moelis & Company and would launch a formal process. It "has received several expressions of interest with regard to potential strategic transactions," LME said in a statement.

"The board...will begin a formal process which may or may not lead to an acceptable offer for the company being received."

A LME spokesman declined to give any further details.

CHANGE STATUS?

Sessions at the LME take place in a trading ring with red padded seats while visitors can watch from a gallery. Traders juggle multiple telephones and use archaic hand signals to fill orders from consumers, producers and hedge funds.

It was unclear how receptive the owners of the LME would be to selling out after a senior executive of the exchange told Reuters in March it had no plans to change its independent status.

Broker members such as Sucden Financial, Barclays (BARC.L) and JP Morgan (JPM.N) would have to decide whether getting a one-time payment would outweigh the advantage of having fees that are deliberately kept low as a member-owned group.

A source close to the situation said the LME received an approach in 2008 that would value the company at about 800 million pounds ($1.2 billion).

To buy the LME a suitor would first have to win the support of 75 percent of the members to agree to alter the LME articles in order to sell the shares.

ICE and LSE are the most logical bidders, said Andre Cappon, president of CBM Group, a New York-based consultant for global exchanges.

"ICE would like to corner another part of the commodities world, so going after LME would make sense. ICE has not done a deal for a while and they may have been cooking this up," he said.

A deal for ICE would mean expanding into metals from its current focus on energy and agriculture. The LSE, meanwhile, might be tempted by an opportunity close to home after an unsuccessful attempt it made this year for Toronto Stock Exchange parent TMX Group Inc (X.TO).

"LSE seems to have understood that, since the Canadian venture didn't work, rather than try to go overseas and create global exchanges, let's see what's available in London," Cappon added.

While three major takeover plans among exchanges -- from Asia to Europe to North America -- have failed this year, Deutsche Boerse AG's (DB1Gn.DE) blockbuster $9 billion offer for NYSE Euronext NYX.N is still on track pending an antitrust review.

Nationalistic and regulatory concerns have derailed many of the bourses' attempts to band together to cut costs and ramp up higher-margin derivatives trading and clearing.

The LME, which accounts for 80 percent of traded volume in global metal futures transactions, saw record trading volumes last year of 120 million lots equivalent to $11.6 trillion and 2.8 billion tonnes of metal.

Profit levels, however, were modest, partly due to the fact it holds fees down for its members. Pre-tax profit in 2010 fell 28 percent to 12.5 million pounds.

(Additional reporting by Marie-Lousie Gumuchian, Maytaal Angel, Melanie Burton, Jonathan Spicer and Ann Saphir; editing by Anthony Barker, Eric Onstad and Andre Grenon)

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