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JPMorgan to Raise Stake in LME - Analyst Blog
11/23/2011 3:59:00 PM
On Tuesday, Financial Times reported that JPMorgan Chase & Co. ( JPM ) is increasing its stake in the London Metal Exchange (LME). According to the report, the company is buying additional 4.7% stake (600,000 'A shares') in the LME from currently bankrupt MF Global Holdings Ltd. ( MFGLQ ) for £25 million ($39.1 million).
JPMorgan will buy the stake in an auction process handled by MF Global's administrator, KPMG. Before closing, the deal requires the LME board's approval. Following its completion, JPMorgan, which presently holds 6.2% stake in LME, will become the largest stakeholder with nearly 10.9% stake.
JPMorgan will also buy 25,000 'B shares' of the LME that were held by MF Global, for £2 million ($3.125 million), through another deal. While these shares will provide the company the right to trade on the LME as a category one member, the 'A shares' will entitle it to economic and voting rights. According to the LME standards, in order to trade on the trading floor, category one members must own at least 25,000 'B shares' in the exchange.
Apart from JPMorgan, other large stakeholders in the LME include The Goldman Sachs Group, Inc. ( GS ) with 9.5%, Metdist, a privately owned metals trader, with 9.4% and UBS AG ( UBS ) with a 4.3% stake. The ownership of the LME is restricted to nearly 90 members and hence, its shares rarely come up for sale in the market. The last stake exchange occurred in July when Goldman bought a stake from Lehman Brothers' European arm.
The LME is also an attractive acquisition target. In September, it reported about receiving several 'expressions of interest' from potential buyers including CME Group Inc. ( CME ), IntercontinentalExchange Inc. ( ICE ) and the Singapore exchange.
Hence, by increasing its stake in the LME, JPMorgan, will be in a position to receive a bigger payout in case LME gets sold out. Also, the company will have greater influence on various decisions such as to whom and under what terms the sale will be made.
Currently, JPMorgan retains its Zacks #3 Rank, which translates into a short-term Hold rating.
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