--Hong Kong Exchanges picked as preferred LME bidder, must
convince LME members to sell
--Offer for LME is worth 107.6 pounds ($167) a share, more than
double current price
--Hong Kong Exchanges says it can unlock significant
opportunities for the LME in Asia
By Andrea Hotter
Hong Kong Exchanges and Clearing Ltd. (0388.HK) will spend the
next few weeks working to convince members of the London Metal
Exchange to sell it their shares, hoping that the allure of
expansion in China is enough.
Hong Kong Exchanges, which has been picked as the preferred
bidder to buy the LME following a meeting of its board Wednesday,
says it can unlock significant opportunities for the LME in Asia.
It will pay GBP1.388 billion for the LME, equivalent to around
GBP107.6 a share and more than double the current share price of
GBP41.92.
A vote is expected by the end of July and, if Hong Kong
Exchanges is able to secure approval from 75% of shareholder votes
and 50% of LME members, the deal is slated to complete in the
fourth quarter. U.K. regulator the Financial Services Authority
will also need to sign off on the deal. A sale needs approval from
75% of shareholder votes and 50% of LME members.
The lure of enhanced access to the lucrative market of China,
the world's largest metals consumer, gave Hong Kong
Exchanges--previously the underdog in the auction process--the edge
when it came down to the final board decision, people familiar with
the matter said.
The company knocked IntercontinentalExchange Inc. (ICE) out of
the frame in the final stage.
Hong Kong Exchanges doesn't have any experience in warehousing
metals and doesn't trade metals. But its bid team, lead by Chief
Executive Charles Li, says it would use its close ties with
China--a central theme of its bid--to help the LME achieve its
long-sought goal of licensing independent firms to run warehouses
in Chinese locations. LME trading volumes would grow by attracting
new Chinese clients, it says, and hand-holding some of them through
the process of becoming new LME members.
Similarly, the LME board was won over by Hong Kong Exchanges'
proposal to develop a bespoke clearing platform for the LME,
specifically for its business and in liaison with an existing
project to move the metals' exchange's clearing in-house. Hong Kong
Exchanges already runs clearing operations in Asia, allowing
members to clear in Chinese yuan.
Hong Kong Exchanges has also given assurances it won't move to
close the LME open outcry trading floor, change the daily dates
system to monthly, or overhaul the warehousing system, which has
attracted some criticism in recent months due to ownership and
delivery concerns.
Apart from ICE, Hong Kong Exchanges fought off tough competition
from a number of other industry exchanges including CME Group Inc.
(CME) and NYSE Liffe, the London-based derivatives arm of NYSE
Euronext (NYX), both of which were eliminated from the bidding
process in May.
LME shareholders will be canvassed until voting takes place at
an Extraordinary General Meeting, to be held 14 business days after
it is called. Hong Kong Exchanges will now put the finishing
touches to the documentation for the proposed deal before it is
sent to LME members along with notification of the EGM date.
Write to Andrea Hotter at andrea.hotter@wsj.com