MethodologyContact usLogin
Which exchange or company is most likely to table the winning bid to take over the London Metal Exchange? One broker (who requested anonymity) thinks that talk about ICE and the CME being the favourites is overdone. So who does he tip to take over the LME, and why?
There is a growing conviction that the Singapore Exchange (SGX) has made a strategic decision to buy the LME — and is the favourite to do so.
That the LME is difficult to value is undeniable. Sources of revenue and cost saving can be found but each have challenges. Costs could be reduced by assimilating the LME executive and LME Select into a larger organisation. But generating new sources of revenue proves difficult.
The recent member action against plans to lift fees illustrated the strength of opposition to higher costs, and by inference the degree to which some shareholders are likely to fight off approaches from bidders they suspect will charge market users more.
Other potential new sources of revenue, such as the LME’s much-vaunted clearing function, are still on the drawing board, meanwhile.
It is clear that the CME and ICE have an interest in the LME, and both exchanges have the organisation and software to surmount the challenge of taking it over.
But bids from CME or ICE will be powered by a strong agenda and timetable of change.
The SGX, on the other hand, could volunteer a hands-off approach.
And SGX, which is part owned by an investment vehicle funded by Temasek, the Singporean sovereign wealth fund, is as keen as any exchange to take part in consolidation.
Its A$8.4 billion ($8.8 billion) move on the Australian Securities Exchange last year was only derailed by the qualms of Australian politicians, bankers and regulators.
Its holistic agenda and deep pockets could make an SGX bid acceptable to just about everyone.
Ties exist already, of course: the SGX, lest any of you have short memories, was the exchange with which the LME launched those controversial minis back in 2011.
The LME’s own figures point to as much as 18% of business on LME Select being executed before 7am London time, and we can further assume that business that originates in Asia continues to grow throughout the European day.
In addition, the opening of LME warehouses inside China is considered by many China observers to be a done deal.
Through the addition of such warehouses the LME will continue to develop as an Asia-centric exchange. The introduction of LME warehouses, probably in Yangshan, means the SGX will have no room to manoeuvre in the Asian metal space unless it buys the LME.
Further an LME with ICE or CME as the new owner could present a challenge for the SGX’s own business case.
So, for the owners of the SGX, the purchase of the LME is not only an issue of percentage return, for the SGX, it may also be one of survival.