Vote seals Hong Kong purchase of London Metal Exchange

LONDON Wed Jul 25, 2012 11:56am EDT

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LONDON (Reuters) - London Metal Exchange (LME) shareholders voted convincingly on Wednesday to accept a $2.2 billion offer by the Hong Kong bourse for the 135-year-old British institution, underscoring a global shift in manufacturing to China, Asia's economic powerhouse.

Hong Kong Exchanges and Clearing Ltd (0388.HK) (HKEx) and the LME announced on June 15 they had agreed on an acquisition that would give LME members a gateway to China, the world's biggest metals buyer. The LME is the largest marketplace for materials such as copper, aluminum and zinc.

"The deal with HKEx, Asia's leading exchange, will secure the LME's position as the world's foremost metals trading venue," said Martin Abbott, chief executive of the LME, who is set to stay on after the deal is concluded later this year and could get up to 7.4 million pounds ($11.5 million) from a shadow equity scheme.

The agreement marks the end of the LME's long history as a member-owned exchange.

At an extraordinary general meeting early on Wednesday, 64 shareholders voted yes and three voted against, the LME said.

"This was the end of an era and the start of a new one," said Michael Overlander, chief executive of trading house and big LME shareholder Sucden Financial.

At the LME, besuited men and a few women still use arcane hand signals to conduct open outcry trade in copper, aluminum, lead, nickel, tin and zinc around a circular floor in a plain building on Leadenhall Street, near the Bank of England.

Many shareholder members, who own and use the exchange, which dates from a time when Britain and not China was the workshop of the world, had feared the 1.4 million pound sale might alter its unique, complex structure of futures trading and low fees.

As late as Monday, more than one significant shareholder had still been undecided.

Another shareholder said he had not expected the result to be so overwhelmingly in favor of the sale, but had felt it would succeed.

"We didn't see the necessity to sell the LME. But we were not specifically against Hong Kong -- they are probably the best possible buyer," Stefan Boel, executive board member at Aurubis (NAFG.DE), Europe's largest copper producer, said.

"Now we are looking forward and we hope for a constructive relationship with the Hong Kong exchange. What is important to us is the industrial purpose of the LME, the warehousing and the risk protection."

In the end other opponents of the deal were swayed by the lure of cash in the current tough business conditions -- even smaller members, with around 12,000 shares, will get more than 1 million pounds.

CHINA BECKONS

HKEx Chief Executive Charles Li has promised that until at least January 1, 2015, HKEx will preserve the LME brand, the open-outcry trading and the structure that many members believe are crucial to reaching an accurate market price for metals.

For the LME, the deal offers a fast track into China and will strengthen its position in the major market against the Shanghai Futures Exchange, which also trades in base metals.

"The deal sells itself. No one knows who voted which way, but one can assume from the enormous majority that no significant shareholder voted against," said Jim Coupland, LME board member and Global Head of Base Metals and Bulk Commodities at Standard Bank.

"The exchange evolves over time, this is not the first sea-change that we've seen," he added.

The London exchange has long sought to win approval from China's regulators to list its warehouses nearer customers in the country which accounts for 40 percent of copper consumption.

HKEx Chairman Chow Chung Kong said last month it was preparing to set up metal warehouses in China and launch products using the renminbi currency.

Concerns over the hefty price tag have partly weighed on the Hong Kong company's shares, with the stock down 18 percent so far this year, compared to a 2.4 percent rise in the benchmark Hang Seng index .HSI.

Some analysts have voiced concern HKEx may be over-paying for the LME, which made a net profit of just 7.7 million pounds last year due to the constrained-profit model treasured by the metals plants and traders who make up the smaller shareholders.

HKEx will finance the acquisition of the exchange, where total traded value was $15.4 trillion last year, through its existing funds and with a 1.1 billion pound ($1.7 billion) bank loan.

Moelis & Co were advisers for the LME, Rothschild and UBS for HKEx.

(Additional reporting by Eric Onstad and Harpreet Bhal; Editing by Veronica Brown and Anthony Barker)

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