Consolidation Continues

Terry Flanagan

While over $30 billion in exchange deals have gone by the wayside, several key deals remain on the table.

Since announcing last September that it had received several expressions of interest from multiple potential acquirers, the London Metal Exchange has seen record trading volume, further boosting its appeal to its suitors.

U.S.-based exchange groups IntercontinentalExchange, CME Group and NYSE Euronext have each either submitted an expression of interest or made an outright bid for the world’s largest market for industrial metals, according to reports. Whoever ends up with the prized venue will substantially boost their presence in metals trading

“It would be diversifying for most exchange groups, as none of the ones rumored (to be interested) have any great presence in industrial-use metals,” said Michael Wong, an exchange analyst with Morningstar. “CME Group and the IntercontinentalExchange were among those brought up, and acquiring the LME would be diversifying for them. It would fill in a slight weakness in CME, and for ICE, most of the products that it lists are commodity products, so getting extra global commodity exposure would also help with diversification.”

Total trading volume at the industrial metals-focused London Metal Exchange jumped 22% year-over-year, with a total of 146.6 million lots trading in 2011. Total value traded was also up some 33% to $15.4 trillion.

The LME is the world’s largest market for industrial metals, handling 80% of the world’s global metals futures transactions. It is one of the few member-owned exchanges still operating today. Any potential acquirer would need to come to an agreement with at least three-quarters of the exchange’s 92 members on an amicable deal.

Its largest owners include JPMorgan Chase, with a 10.9% stake, Goldman Sachs, which has a 9.5% stake and Metdist, a family-owned metals trader, holding 9.4%. Barclays owns a 2.3% share as well.

The other highly-coveted asset still in play is London clearing house LCH.Clearnet, which has been in exclusive talks with the London Stock Exchange since the fall of last year. In a recent announcement, the clearer said it plans to make an announcement “shortly” regarding the results of those discussions. It is widely expected that it will announce a deal in which the LSE will take a majority stake of at least 51%. LCH.Clearnet is currently 83% owned by clients and 17% owned by exchanges.

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