The Financial Times reported that the US derivative exchange
NYSE Euronext Inc.
) 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.
) - 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.
Goldman Sachs Group Inc.
) with 10.9% and 9.5% stakes, respectively, along with
). 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
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
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
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