LME Holdings, HK Investment (UK) Limited and Hong Kong Exchanges and Clearing Limited (HKEx) have entered into a framework agreement regarding the terms of a recommended cash offer for the entire issued and outstanding ordinary share capital of LME Holdings by HKEx Investment, an indirect wholly-owned subsidiary of HKEx.
Following the decision of the board of LME Holdings to enter into the Framework Agreement, the Relevant Directors intend to unanimously recommend, in the Scheme Circular, that the holders of ordinary shares of LME Holdings vote in favour of the Transaction at the Ordinary Shareholder meetings expected to be convened before the end of July 2012.
Under the terms of the Offer, HKEx Investment will acquire the entire issued and outstanding ordinary share capital of LME Holdings for (and each Ordinary Shareholder will receive) GBP107.60 per LME ordinary share in cash by way of a court sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the “Scheme”). This implies a value of GBP1,388 million based on 12,900,000 ordinary shares (being 100 per cent of the ordinary share capital of LME Holdings), with the Offer consideration being financed from HKEx’s existing cash resources and new bank facilities of at least GBP1,100 million.
Key highlights of the Transaction:
Brings together the London Metal Exchange (“the LME”), the world’s leading2 non-ferrous base metals exchange trading venue with the leading operator of exchanges and clearing houses in Asia;
Recognises the value of the LME brand, which will be preserved, with the LME remaining a Recognised Investment Exchange (“RIE”) in London regulated by the UK Financial Services Authority;
Preserves the LME’s unique business model, including the operation of the “Ring” (openoutcry trading), daily prompt date contract structure, existing membership structure and capacity for warehousing and physical delivery, which contribute to the LME’s position as the world’s price formation venue for non-ferrous base metals;
Provides a platform for significant long term growth through the expansion of the LME’s business and operations in Asia and the Chinese market by leveraging HKEx’s resources, infrastructure and network in the region;
Supports the development of the LME’s own clearing house, LME Clear, which will enable the LME to launch new products and services more efficiently drawing on HKEx’s track record and experience in operating three clearing houses;
Enables the LME to leverage HKEx’s considerable IT expertise, infrastructure and resources to enhance its current IT platform;
Accelerates HKEx’s strategy to develop its own commodity offering and to diversify its revenue sources; and
It is expected that a circular containing and setting out, among other things, the full terms and conditions of the Scheme and containing the notices convening the Ordinary Shareholder meetings (the “Scheme Circular”) will be posted to Ordinary Shareholders within approximately 15 business days of this announcement, ahead of the Ordinary Shareholder meetings to approve the Transaction which are expected to take place before the end of July 2012. The Transaction is expected to close during the fourth quarter of 2012, subject to FSA approval and all other relevant conditions (as set out below in the section titled “Framework Agreement”).
Martin Abbott, Chief Executive of LME Holdings and the LME, says: “This proposed combination will secure the future of the LME for its next 135 years. The LME’s global benchmarks plus HKEx’s pre-eminent market position in Asia, its IT and trading resources and clearing expertise will cement the LME’s position as the world’s foremost base metals trading venue.”
Charles Li, Chief Executive of HKEx, says: “The acquisition of LME Holdings represents a unique opportunity for us to acquire in one stroke a position of global leadership in the commodities market. This is consistent with our strategy to expand beyond equities and equity derivatives and offers significant opportunities for revenue growth. HKEx brings a unique ability to help the LME grow its business in Asia and, particularly, China and we will capitalise on this to deliver value for all our stakeholders. We are looking forward to working with the team at the LME to achieve these objectives.”
This summary should be read in conjunction with, and is subject to, the full text of the announcement below. The Transaction will be subject to the terms and conditions of the Framework Agreement and to the full terms and conditions to be set out in the Scheme Circular.
In September 2011, the Board of the LME announced that, following receipt of a number of proposals, it would initiate a process of reviewing the strategic alternatives open to it, including the possibility of the sale of the LME. An extensive and thorough process resulted in detailed proposals from a number of parties. Based on a range of important criteria, including amongst others, business and operational matters, transaction certainty, regulatory and governance matters and value, HKEx represented the clearly preferred choice to put to shareholders.
HKEx is the leading operator of exchanges and clearing houses in Asia and a key player globally, with a market capitalisation of GBP9.8 billion as at 14 June 2012. HKEx operates two exchanges and three clearing houses covering both cash and derivatives markets.
The LME is the world’s leading3 exchange for trading non-ferrous base metal forwards and options contracts. It achieved record volumes during 2011, with 146.6 million lots traded, equivalent to USD15.4 trillion in notional contract value. Over the past five years, trading volumes have grown by 12.1 per cent per annum (2007-2011 compound annual growth rate), despite the difficult global economic environment, demonstrating the resilience of the LME’s business model and the elasticity of its client base.
While the LME is a global exchange, it has yet to realise fully the growth opportunity in Asia and China, in particular. The Transaction therefore combines two highly complementary businesses, bringing together the world’s leading non-ferrous base metals exchange with HKEx, Asia’s leading international financial market operator. Furthermore, the Transaction provides a platform for significant revenue growth as the LME’s business and operations are expanded in Asia using HKEx’s regional resources, infrastructure and network.
In connection with the Transaction, HKEx has today announced that, together, HKEx and the LME will focus on three key areas:
Preserving and enhancing the LME’s existing business model;
Expanding the presence of the LME in Asia and China; and
Developing the LME over time in accordance with the needs of its members and market participants.