London Metals Exchange Moving to Hong Kong (NYX, ICE, CME)

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The world’s largest base metals market is moving to the Far East. The 135-year-old London Metals Exchange (LME) has agreed to be acquired by Hong Kong Exchange & Clearing (HKEx) for $2.2 billion in cash. LME shareholders are expected to vote on the deal by July, with a 75% approval vote needed to cement the deal.

LME sets the world’s benchmark for contracts on copper, aluminum, and zinc, and trades other base metals as well.

The LME has been the object of a nine-month auction that included NYSE Euronext Inc. (NYSE: NYX), IntercontinentalExchange Inc. (NYSE: ICE), and CME Group Inc. (NASDAQ: CME) along with HKEx. The winning bid values the LME at 22x the last traded price before the exchange announced that it was for sale and 180x the exchange’s 2011 net profit. A tidy profit for shareholders.

The winning bidder has promised to maintain the LME’s open outcry trading floor, its network of bonded warehouses, daily contract clearing, and members’ involvement in decisions. HKEx plans to boost LME trading volumes by fostering ties to mainland China, where the Shanghai Metals Exchange has handled futures contracts in base metals since 1992.

Paul Ausick