NYSE Shoved Off LME Bid - Analyst Blog
16 Maggio 2012 - 2:00PM
Zacks
The Financial Times reported that the US derivative exchange
giant – NYSE Euronext Inc. (NYX) has been pushed
out of the London Metal Exchange (LME) buyout battle owing to its
low bid price.
However, other potential buyers – Hong Kong Stock Exchange,
CME Group Inc. (CME) and
IntercontinentalExchange Inc. (ICE) – are still
running neck-to-neck in the race. While NYSE’s bid was valued at
£800 million ($1.28 billion), the other three bidders have
reportedly made biddings worth over £1.0 billion
Founded in 1877, LME is the world's largest futures exchange,
which offers futures and options contracts on base and other
metals, which include aluminium, aluminium alloy, NASAAC (North
American Special Aluminium Alloy), cobalt, copper, lead,
molybdenum, nickel, steel billet, tin and zinc.
LME is owned by 93 members, the top-most shareholders being
JP Morgan Chase & Co. (JPM) and
Goldman Sachs Group Inc. (GS) with 10.9% and 9.5%
stakes, respectively, along with Barclays Plc
(BCS) and Citigroup Inc. (C). LME is also one of
the last member-owned exchanges in the world wherein trading is
conducted through the open-outcry system in the ring by the ring
dealing members. In addition to the 12 companies who have exclusive
rights to trade in the ring, around 100 companies are involved in
the LME in total.
As the LME offers contracts with daily expiry dates of up to
three months from the trade date, along with longer-dated contracts
up to 123 months, it also allows for cash trading. Furthermore, it
offers hedging, worldwide reference pricing and the option of
physical delivery to settle contracts.
Accordingly, the preliminary bid for LME started in September
last year and was closed in February this year. While LME is
mulling over the right price and future of the deal, the actual bid
offers of the three remaining contestants remain undisclosed.
Scope of Growth for Derivative Giants
After the collapse of its merger deal with Deutsche Boerse, NYSE
had shown significant interest in LME as this metal exchange’s
business blends well with NYSE Liffe’s soft and agricultural
commodity derivative business. NYSE Liffe is the former London
International Financial Futures Exchange, which trades coffee,
sugar, cocoa and wheat futures. While LME and NYSE Liffe already
share the same storehouses for delivery of commodities, the
combined trades could be cleared at NYSE Liffe Clear, which is
currently at a nascent stage of growth. Hence, this effort could
have paved way for a new earnings opportunity, had the deal
materialized.
On the other hand, addition of LME to CME’s basket could enhance
its metals exchange, Comex. Hence, the deal is also considered
important for other derivative exchanges, such as CME and
IntercontinentalExchange, in order to boost their competitive
strength in Europe.
Besides, Hong Kong stock exchange is desperately looking forward
to the culmination of this deal so that it can tap the volatile
European markets to drive growth momentum in the markets of
China.
While the owners of LME are apprehensive about safeguarding its
business model, we believe the complex structure of its futures
contracts and its network of registered warehouses could pose some
issues in the business sale. Nevertheless, given the gravity of the
changing business dynamics in this industry and the lucrative
pricing of the bids, a final outcome is expected soon.
BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CME GROUP INC (CME): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
INTERCONTINENTL (ICE): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
NYSE EURONEXT (NYX): Free Stock Analysis Report
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