HK stock exchange makes $2.2 billion offer for LME

[June 15, 2012]  HONG KONG (AP) -- Hong Kong's stock exchange operator said Friday it has agreed to buy the 135-year-old London Metal Exchange for 1.4 billion pounds ($2.2 billion) as it shifts into commodities to capitalize on Chinese demand.

Hong Kong Exchanges and Clearing Ltd. said it has signed an agreement with the LME, the world's largest metals market, to pay 107.60 pounds for each of its 12.9 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 "realize fully the growth opportunity" in Asia, especially China, and the deal would provide a platform for "significant revenue growth" as LME expands its business and operations in the region.

The exchange has "identified particular demand for commodities trading, focused around metals, to support the large and growing metals consumption in Asia, and particularly, China," it said in a statement.

China has a near insatiable appetite for metals, fueled by its booming economy's demand for everything from cars to computers to skyscrapers.

Earlier this year, Hong Kong Exchanges' CEO Charles Li said the exchange wanted to move quickly to come up with new products that would capture China's strong demand for commodities before international and mainland Chinese players develop their own.

Hong Kong is a semiautonomous region of China with its own currency and legal system.

The LME hosts trading of futures and options contracts for aluminum, copper, nickel, zinc and other metals worth, on average, $61 billion a day or $15.4 trillion 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 warehouses around the world to store the actual metal that backs the contracts traded on its market. A deal with the Hong Kong exchange could pave the way to setting up storage sites in China.

The Hong Kong exchange will use cash and new bank facilities of at least 1.1 billion pounds to finance the purchase.

The takeover also needs approval from Hong Kong Exchange's shareholders and British regulators. It's expected to close in the fourth quarter of 2012.

[Associated Press; By KELVIN CHAN]

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