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London Metal Exchange puts itself up for sale

A train carrying copper cathodes leaves the Chuquicamata mine and foundry in Chile.


The London Metal Exchange, the world's biggest market for industrial metals that has hit record volumes this year, is considering a sale of itself after being approached about deals, it said on Friday.

The 134-year-old exchange, owned by trading houses and banks that use the market, declined to identify its suitors, but analysts said two potential bidders were the ICE exchange in the United States and the London Stock Exchange.

"I'm not surprised [at the approaches]because obviously the LME is very good at what it does, it's pre-eminent, it has first-mover advantage and I could see that being attractive to another futures exchange," said Robin Bhar, an analyst at Crédit Agricole.

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Other possible bidders were the Singapore Exchange and the Hong Kong exchange, analaysts said, while the CME appeared to distance itself from a takeover.

CME Group Inc. chief financial officer James Parisi said on Sept. 13 the company has "no significant M&A in our immediate future," and a CME spokesman on Friday said that was still the case.

A spokesman for IntercontinentalExchange Inc. (ICE) declined to comment.

The LME, one of the last bastions of open outcry trading, said it was being advised by investment bank Moelis & Co. and would launch a formal process.

"The London Metal Exchange (LME) has received several expressions of interest with regard to potential strategic transactions," a statement said.

"The board...will begin a formal process which may or may not lead to an acceptable offer for the company being received."

A LME spokesman declined to give any further details.

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Sessions at the LME take place in a trading ring with red padded seats while visitors can watch from a gallery. Traders juggle multiple telephones and use archaic hand signals to fill orders from consumers, producers and hedge funds.

It was unclear how receptive the owners of the LME would be to selling out after a senior executive of the exchange told Reuters in March it had no plans to change its independent status.

Broker members such as Sucden Financial, Barclays and JP Morgan would have to decide whether getting a one-time payment would outweigh the advantage of having fees that are deliberately kept low as a member-owned group.

A source close to the situation said the LME received an approach in 2008 that would value the company at about £800-million pounds ($1.2-billion U.S.).

To buy the LME a suitor would first have to win the support of 75 per cent of the members to agree to alter the LME articles in order to sell the shares.

ICE and LSE are the most logical bidders, said Andre Cappon, president of CBM Group, a New York-based consultant for global exchanges.

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"ICE would like to corner another part of the commodities world, so going after LME would make sense. ICE has not done a deal for a while and they may have been cooking this up," he said.

A deal for ICE would mean expanding into metals from its current focus on energy and agriculture.

The LSE might be tempted by an opportunity close to home after an unsuccessful attempt it made early this year for the Toronto Stock Exchange.

"LSE seems to have understood that, since the Canadian venture didn't work, rather than try to go overseas and create global exchanges, let's see what's available in London."

The LME, which accounts for 80 per cent of traded volume in global metal futures transactions, saw record trading volumes last year of 120 million lots equivalent to $11.6-trillion and 2.8 billion tonnes of metal.

Profit levels, however, were modest, partly due to the fact it holds fees down for its members. Pre-tax profit in 2010 fell 28 per cent to 12.5 million pounds.

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