Hong Kong Exchanges to Buy London Metal Exchange for $1.39 Billion

Written by: Deyana Ivanova
June 20, 2012

Hong Kong Exchanges and Clearing Ltd. (HKEx) agreed on Friday (June 15) to buy the London Metal Exchange (LME), which handles more than 80 per cent of the global trade in industrial-metal futures, for £1.39 billion ($2.15 billion). HKEx, one of the world’s biggest financial exchanges based on market capitalisation, outbid several rivals for control of the 135-year-old London firm. Hong Kong Exchanges fought off tough competition from the U.S. commodities exchange bourse, IntercontinentalExchange Inc. (ICE), which made a bid worth £1.3 billion. Apart from ICE, the company also beat rival bids from CME Group Inc. (CME) and NYSE Liffe, the London-based derivatives arm of NYSE Euronext (NYX).

The Hong Kong exchange offered to pay £107.60 for each of LME’s 12.9 million shares. The Asian bourse exchange will use cash and new bank facilities of at least £1.1 billion to finance the purchase. The bridge loan will be provided by UBS, China Development Bank, Deutsche Bank and HSBC. If approved the acquisition for Europe’s last open-outcry exchange is expected to be earnings-enhancing in the third year after the deal closes, Hong Kong Exchanges said. According to the conditions of the deal, HKEx will retain LME’s brand and keep its current business model and the iconic open outcry trading set up.

!m[](/uploads/story/153/thumbs/pic1_inline.png)The deal – still subject to approval by the LME shareholders and U.K. regulatory body – would bring LME members closer to the world’s biggest metals buyer. But the takeover would not just give the London bourse better access to China, it will also give the Asian bourse its much-desired commodity trading platform. As China gradually becomes the world’s most important player in the commodities market, it will strengthen its grasp on the global gold trade, which it set out to do in its latest five-year plan. And while the world economy muddles through, China is consolidating its international position in the world of financial markets.

Commenting on the acquisition Charles Li, Chief Executive of HKEx said, “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.”
A vote on the bid is expected by the end of July and if Hong Kong Exchanges is able to secure approval from 75 per cent of shareholder votes and 50 per cent of LME members, the deal is slated to complete in the fourth quarter of the year. The British regulator, the Financial Services Authority will also need to sign off on the deal. And if approved, the acquisition will provide a windfall for its main shareholders,
JPMorgan and Chase and Goldman Sachs. The U.S. banks which collectively own a 20.4 per cent stake in the London-based exchange, could pocket a combined $436 million through the transaction.

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