(15 Jun 2012) Hong Kong's stock exchange operator said on Friday it has agreed to buy the 135-year-old London Metal Exchange (LME) for 1.4 (b) billion UK Pounds (2.2 (b) billion US Dollars) as it shifts into commodities to capitalise on regional demand.
Hong Kong Exchanges and Clearing Limited said it has signed an agreement with the LME, the world's largest metals market, to pay 107.60 UK Pounds (166.93 US Dollars) for each of its 12.9 (m) million shares. The LME's board plans to recommend shareholders accept the offer at a meeting expected before the end of July.
The Hong Kong bourse's offer follows plans announced earlier this year to expand into commodities, marking a major move away from its slow-growing equities business.
Hong Kong Exchanges said the LME has yet to fully the seize the growth opportunity in Asia, especially China, and the deal would provide a platform for significant revenue growth.
Even though the LME accounts for 80 percent of global trading in nonferrous metals, "it really has a tremendous amount of room to grow in Asia," said Hong Kong Exchange CEO Charles Li.
China, the world's second biggest economy, has a near insatiable appetite for metals, fuelled by its booming economy's demand for everything from cars to computers to skyscrapers. The country accounts for 42 percent of global consumption of nonferrous metals like aluminium, copper, nickel and zinc.
Li said the Hong Kong exchange could use the LME to expand into dealing in other metals like iron ore and steel making coal, which are "very, very massively needed in China," as well as other commodity types.
The LME purchase would also allow the exchange to develop products denominated in yuan, China's currency, which China is trying to promote greater use of abroad.
The LME hosts trading of futures and options contracts worth, on average, 61 (b) billion US Dollars a day or 15.4 (t) trillion US Dollars annually. It's the last open-outcry exchange in Europe, where deals are made by traders huddling together on a trading floor and calling out prices, rather than electronically.
The LME also operates 732 warehouses in 14 countries to store the actual metal that backs the contracts traded on its market. A deal with the Hong Kong exchange would pave the way to bring storage sites in China into its network.
The takeover still needs approval from Hong Kong Exchange's shareholders and British regulators. It's expected to close the deal in the fourth quarter of 2012.
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