The London Metal Exchange, the world’s biggest metals bourse, may get as much as $54 million from the partial sale of its stake in LCH.Clearnet Group Ltd., exceeding the profit the LME reported in 2010.
Shareholders of LCH.Clearnet, Europe’s largest clearinghouse, backed yesterday a proposal to sell as much as 60 percent of their shares to London Stock Exchange Group Plc for 463 million euros ($611 million). Shareholders will get 19 euros a share in cash and a special dividend of 1 euro a share.
The LME owns 3.27 million shares in LCH.Clearnet, meaning it may sell as much as 1.96 million shares for about 37 million euros. It would also get a special dividend for all the shares, equal to 3.27 million euros. “It will be up to the board to decide what to do with the money when we receive it,” Chris Evans, head of business development at the LME, said by phone.
The 135-year old LME is considering takeover bids after trading volume climbed to a record last year. It may be worth $1.3 billion, Equity Research Desk, an adviser to hedge funds based in Greenwich, Connecticut, said in February. The LME clears its trades through LCH.Clearnet, based in London, and plans to create its own clearinghouse to boost revenue. It expects to complete the project in the first quarter of 2014, according to an LME presentation in February.
The LME agreed to support the LCH.Clearnet sale, according to a London Stock Exchange document setting out the proposal and published on its website. The LME reported net income of 9.5 million pounds ($15.1 million) on revenue of 50.76 million pounds in 2010, its latest available financial statement shows.
“LME continues to be a really important client,” Ian Axe, chief executive officer of LCH.Clearnet, said yesterday after a meeting when shareholders with 94 percent of votes received were in favor of LSE’s offer. “I would like it if we could continue to serve LME though no one is a prisoner.”
NYSE Euronext, owner of Liffe, Europe’s second-largest derivatives exchange, said last week that it plans to spend $85 million moving some of its clearing from LCH.Clearnet, and expects to start NYSE Liffe Clearing in the middle of next year.
The LME traded $15.4 trillion of contracts in 2011. CME Group Inc., NYSE Euronext and Intercontinental Exchange Inc. made preliminary offers for the LME, three people with direct knowledge of the matter said in February.
The LSE said 99.9 percent of its shareholders agreed to the deal at a separate meeting in the U.K. capital. The transaction is expected to be completed by the fourth quarter and needs to be approved by antitrust authorities.
Clearinghouses operate as central counterparties for every buy and sell order executed by their members, providing collateral and reducing the risk of loss from a trader’s default. They have become more attractive when regulators asked for more central clearing of derivatives after the bankruptcy filing of Lehman Brothers Holdings Inc. in September 2008.