Isra-Mart srl: Ten potential bidders for the LME

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Next week marks LME Week, the London Metal Exchange’s annual investor relations extravaganza. This year might be busier than usual. The world’s largest metal exchange and host of Europe’s last open outcry trading floor is weighing up a potential sale and has already received at least 10 expressions of interest. Financial News identifies some likely bidders.

Icap
The London-based inter-dealer broker became the first major institution to stick its head above the parapet and express interest in a bid on September 29. “It’s a very interesting business,” chief executive Michael Spencer said on a conference call to global media. “We will do some research and give it some consideration. We will look at it.”

The Icap bid would have the political advantage of keeping base metals trading in London – likely to be popular with both firms’ boards. Icap currently holds 25,000 B shares, according to the LME’s most recent accounts.

• Singapore Exchange
With a cross-listing deal with the LME for metal futures already in place, a full-blown merger would suit the Singaporean bourse’s chief executive Magnus Böcker’s determination to turn SGX into a global commodities powerhouse. A tie-up would also suit the LME’s ambition to attract more business from the far east.

Böcker seems unabashed by his snubbed bid for the Australian Securities Exchange earlier this year; in the firm’s annual report in August said: “Although the proposed ASX-SGX combination did not come to fruition, we are heartened that the transaction raised SGX’s visibility and created new business opportunities.”

An SGX spokeswoman declined to comment.

• London Stock Exchange Group
News this morning that the LSE is considering a joint bid with SGX comes as little surprise. Another bourse smarting from a failed merger this year, an LSE bid would combine the largest global listing venue for commodity trading firms with its largest metals trading platform. A joint move with SGX would combine a London presence with an existing commodities clearing house in Singapore’s AsiaClear.

Ambitious chief executive Xavier Rolet may already have his hands full negotiating a 51% buyout of clearinghouse, LCH.Clearnet, however (though the LME is of course one of LCH’s biggest shareholders).

An LSE spokesman declined to comment.

• InterContinental Exchange Group
Ice’s growth model has always been based on acquisition, since its founding as a small Atlanta-based company in 2000. Through canny acquisitions, it now stands as one of the world’s largest global exchange operators.

The bourse gained a foothold in Europe with the purchase of London’s International Petroleum Exchange in 2001 – another throwback floor-trading market which chief executive Jeff Sprecher took electronic. That gives Ice a similar blueprint for a UK takeover and a movement to to electronic trading – but such a move might not sit too well with the LME’s dominant floor broker membership.

An ICE spokesman declined to comment.

• CME Group
The world's largest futures exchange – and host of the most liquid gold contract on its Comex subsidiary, acquired along with the New York Mercantile Exchange in 2008 – would be a logical bidder.

The bourse lists a range of precious and base metals, and already clears over-the-counter commodity contracts through its London-based clearing house, CME Clearing Europe.

“We don't comment on rumours or speculation,” said a CME Group spokesman.

• Nasdaq OMX Group
Unlikely – but stranger things have happened. Nasdaq are acquisitive and launched an ambitious counterbid for NYSE Euronext earlier this year, in partnership with Ice. They also attempted to buy the LSE during the last great round of exchange consolidation – though the focus of both bids was control of European cash trading.

A Nasdaq spokesman declined to comment.

• NYSE Euronext-Deutsche Börse
Still more unlikely, given the current protracted negotiations the two exchange groups and global regulators over their merger proposal – but senior executives at the group’s Liffe and Eurex derivatives platforms would be salivating at the prospect of adding a large commodities platform to their financial futures arms.

Spokesmen for both bourses declined to comment.

• Bank-led consortium
In the days of heady metals prices and wide margins on commodity contracts, it’s no surprise that the LME’s biggest shareholders should be banks. Goldman Sachs holds the largest stake of any single bank with 6.5%, followed by two other commodity trading powerhouses, UBS (4.1%) and JP Morgan (4.1%, not counting any holding retained through Bear Stearns).

Deutsche Bank, BNP Paribas and Standard Bank, among others, hold smaller stakes, according to the LME’s most recent accounts.

• Management buyout
Potentially a popular alternative to foreign ownership, LME chief executive Martin Abbott has spent long enough in the metals market to garner support for a leveraged buyout – though if valuations near the £1bn mark are accurate, the price may be prohibitive.

Some of the bourse’s shareholders are former executives; Lord Bagri, a former LME chairman, holds an 8.7% stake through his family’s Metdist firm.

• Broker consortium
Given the bourse's arcane structure and lack of direct trading access to users – all trading is done through powerful brokers – some of the bourse’s larger broker-owners may band together, and buy out some of the smaller firms.
Metal and commodity brokers are among the bourse’s largest owners, with firms such as MF Global (4.4%), Newedge (2.8%) and Sucden (2.7%) holding sizable stakes, according to LME accounts.