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WRAPUP 1-ICE, CME leave door open for possible LME bid

Thu, 8th Mar 2012 01:21


By John McCrank and Ann Saphir

NEW YORK/CHICAGO, March 7 (Reuters) -
InterContinental Exchange and CME Group Inc left doors open on Wednesday that each may make a bid for the smaller London Metal Exchange.

The two U.S. rivals in the energy and commodity exchange space have never confirmed that they have bid for the 135-year old base metal and steel futures exchange, but sources have named them as suitors alongside Hong Kong Exchanges and Clearing Ltd and NYSE Euronext.

Two weeks after the LME board considered the first round of non-binding bids, Thomas Farley, president of ICE Futures U.S., said the LME would be a logical fit for his exchange, while CME Chief Financial Officer Jamie Parisi said he won't consider multi-billion-dollar deals, but didn't rule out acquisitions of a smaller size.

With its main European energy market and an established clearing house in Britain, ICE could appeal to the LME, Farley said at the Citi 2012 Financial Services Conference.

'There is industrial logic that we often do and we can say, 'Hey, who can offer a clearing solution? Who can offer a British presence ... who can offer a base of open interest in a clearing house where you can get offsets with base metals complex, which happens to be correlated to a large extent with energy?' he said.

He added that the Atlanta-based exchange operator would also be an attractive partner if the LME was looking for more global distribution. The LME is the world's largest metals exchange, providing benchmark prices for copper, aluminum, nickel, zinc and lead through open-outcry as well as electronic trading and is one of the world's last remaining member-owned exchanges.



CME NOT SEEKING LARGE ACQUISITIONS

At the same conference, CME's Parisi repeated a long-standing promise that the giant exchange operator will not make any more large acquisitions but defined 'large' so as to rule in a smaller deal like the LME.

CME's multibillion-dollar acquisitions of the Chicago Board of Trade and the New York Mercantile Exchange were large, but its acquisition of the Dow Jones indexes for $700 million was 'small,' he said.

Analysts and industry sources have valued the LME at 500 million to 1.5 billion pounds ($800 million-$2.4 billion) based on expectations of higher earnings boosted by new products and by its plans to build its own clearing business.

He declined to comment on CME's potential LME bid and said the company weighs any potential acquisition in terms of the cost savings and new revenue that would result.

The executives' comments come amid mounting speculation whether bids will be high enough to woo the exchange's members and shareholders, which range from JPMorgan Chase to smaller, traditional industrial players such as German copper producer Aurubis.

Members must weigh the advantages of receiving a lump sum payment of millions of dollars over a potential major overhaul of the exchange's unique composition from its warehouse network to its complex data structure, expected if bought by a U.S. exchange.

Suitors are also closely watching the debacle over the LME's planned fee hike which was planned for the start of March but delayed until July after stiff opposition from its members.

The new tariff could increase the value of the exchange, although it has already made certain types of popular trades exempt from the increase.

The tariff is a significant turnabout by the LME which has always operated on lower-fee structure but says it needs to raise funds for projects, such as building an in-house clearing system, if a sale falls through.



STILL OPPORTUNITIES FOR LARGE DEALS

The potential sale of the LME has ignited debate about further consolidation among exchanges.

ICE's Farley said there are still opportunities for the Atlanta-based exchange operator to do large deals even after regulators blocked its $11-billion joint bid with Nasdaq OMX to buy NYSE Euronext last year.

'We think you will see large transformative deals, and we are going to continue to look at those areas where putting one and one together can create something better for shareholders,' he said.

But Nasdaq OMX Group Chief Financial Officer Lee Shavel said at the same conference that global exchanges are likely to focus on small and mid-sized acquisitions.

'We don't believe that mega-consolidation is dead,' he said.

But due to the regulatory environment, along with uncertainty from an economic and from a markets perspective, Nasdaq, which runs U.S. and Nordic markets, will not likely pursue any large deals in the near term, he said.

'It's something that we monitor, we look at, but our primary focus and the most likely M&A activity that you'll see from us are going to be for small and mid-sized bolt-on acquisitions that we know we can integrate into the business and generate good returns from,' he said.

Shavel did not comment on LME specifically.



(Additional Reporting By Josephine Mason; Editing by Bob Burgdorfer) Keywords: LME/ICE CME

(Josephine.Mason@thomsonreuters.com)

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