London Metal Exchange Suitors Have 'Doubled': CEO
Staff Writer, CNBC.com
London Metal Exchange Chief Executive Martin Abbott confirmed to CNBC on Thursday that the exchange is being at least tentatively pursued by other, unnamed firms, but said that there was "no pressing need" for a sale.
A price tag of around 1 billion pounds has been rumored for the exchange. The LME confirmed last week that it had received "several expressions of interest" and is being advised by Moelis & Company on the bidding process. The number of expressions of interest has increased to double figures since then, Abbott confirmed.
Rival exchanges tipped to bid for the 134-year old exchange include Chicago-based US exchange CME Group, which was formed by the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade; SGX, the Singapore exchange; and IntercontinentalExchange, also known as ICE.
Abbott said: "There's no pressing need for the LME to be sold right now. Anyone who wants to buy us is going to have to give shareholders a reason to sell. I'm really happy that we're seen as such an interesting target right now, but I'm also really happy to keep running the business in what I think is a successful way."
He said LME has no preferred bidder or preferred nationality of bidder yet.
Major shareholders Goldman Sachs, which owns 9.5 percent of the exchange, and the family of ex-LME chairman Raj Kumar Bagri, which holds a 9.4 percent stake, could stand to benefit well if the company is sold. Some of them hold their stakes "as a coincidental benefit of operating in metals," according to Abbott.
The exchange has performed well during the economic crisis as the price of metals has soared, with record trading volumes of 120 million lots—the equivalent of $11.6 trillion, or 2.8 billion tonnes of metal, in 2010. The trend has continued in 2011 so far, with daily volume is up 18 percent overall, and 93 million lots traded up to the end of August—the equivalent of $10.5 trillion and 2.2 billion tonnes of metal.
Volume has held up despite recent falls in the price of metals such as copper , according to Abbott.
"Commodities is a multiple-year story – it's not about what's happening this month or next," he said.
Some of the more substantial swings in commodities markets have led to worries about excessive speculation. TheU.S. Commodity Futures Trading Commission is considering enacting position limits measures in order to crack down on speculation.
Abbott said that speculation could actually benefit long-term commodities players. He believes that position limits are "not applicable" to the LME's business.
"We have other mechanisms. We monitor positions and we watch behavior on positions rather than restrict their size," he said. "We think that's a much better and more effective way of dealing with the issue."
"Without speculation you couldn't run a liquid market. Speculators really do oil the wheels of the business," he added.
There's been much to-ing and fro-ing in the exchanges sector in recent months, with the London Stock Exchange talking to LCH.Clearnet about taking over the clearing house, months after a failed bid to buy Canada's TMX.
One factor that may affect London-based trade in coming years is the potential for a Europe-wide Financial Transactions Tax, which European Commission President Jose Manuel Barroso confirmed had been proposed by the Commission Wednesday.
Abbott called the possible tax "ridiculous."
"Everybody thinks taxing everybody else is a good idea. This is a case of the major European economies wanting to tax London," he said. "In the end, it will be German manufacturers and consumers and French producers who will be paying the price."