The Hong Kong Exchange and Clearing Limited today emerged as a winner among bidders to takeover the world's largest base metal exchange, the London Metal Exchange for 1.39 billion pounds ($2.5 billion).
HKEx defeated rival Intercontinental Exchange in the race to takeover LME. NYSE Euronext and CME Group were knocked out early in the run to win the exchange.
The HKEx, HKEx Investment, an indirect wholly-owned subsidiary of HKEx and LME Holdings, the holding company of LME entered into an agreement setting terms of an acquisition in terms of a cash recommendation for the entire issued share capital of LMEH.
HKEx Investment is set to buy the share capital at the offer price of approximately 107.60 pounds for each LMEH ordinary share, which grosses the value of LMEH at 1,388 billion pounds.
The offer price, a release from HKEx said, is to be financed from existing cash resources and atleast 1,100 million pounds of new bank facilities.
The HKEx is a leading operator of exchanges and clearing houses in Asia and a key player globally, with a market cap of 9.8 billion pounds as on June 14. It owns and operates two exchanges and three clearing houses and is currently in the process of establishing a new clearing house for the clearing of over-the-counter derivatives.
While, the LME on the other hand is the world's leading exchange for trading base metal futures and options contracts, with a global market share of 80% approximately. In 2011, the exchange achieved record volumes with 146.6 million lots traded, equivalent to $15.4 trillion.
The exchange's trading volume has grown 12.1% in the last five years.
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.”
According to the conditions of the deal, HKEx will retain LME's brand, and the exchange will operate out of London, its current base. HKEx will also retain LME open outcry tradition, known as the Ring. This involves five-minute trading sessions in each of the nine metals twice a day. Traders stand around a trading pit buying and selling through a mixture of shouting and hand gestures.
Commenting on the take over, Martin Abbot, CEO, London Metal Exchange said, "this proposed combination will secure the future of the LME for its next 135 years. The LME's global benchmarks plus KHEX's pre-eminent market position in Asia, its IT and trading resources and clearing expertise will cenemt the LME's positin as the world's foremost base metals trading venue."
