HKEx's bid for LME may get green light
Source: Bloomberg News |
June 19, 2012, Tuesday
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Print Edition
Print Edition
HONG Kong Exchanges & Clearing Ltd's bid for the London Metal Exchange, the most expensive bourse merger over US$1 billion, may succeed in gaining the approval of regulators who've scuttled US$32 billion of similar cross-border deals.
HKEx shares fell 4.5 percent in Hong Kong yesterday, taking declines to 26 percent since February 18, when the South China Morning Post first reported the bid. The Bloomberg World Exchanges Index has shed 14 percent in that time. The offer of 107.6 pounds (US$168.35) a share, or 180 times LME's 2011 net income, requires approvals from LME's shareholders and the UK Financial Services Authority. It doesn't need shareholder consent in Hong Kong.
The offer price is "extremely expensive," according to a client note from Morgan Stanley written by Anil Agarwal and Isabella He. The LME will remain under the watch of the FSA, meaning the deal may avoid national interest and market power concerns that prompted market regulators and politicians to block other exchange mergers.
"There's a much lower level of political concern about the LME than there would be about the takeover of the London Stock Exchange," said Ruben Lee, CEO of Oxford Finance Group, a London company specializing in financial and commodity markets. "UK regulators will maintain their control over the operations of the exchange. There will be concern about the fitness and the properness of any new owner, but I'm sure that Hong Kong Exchanges & Clearing are going to satisfy that."
HKEx cut to underperform
HKEx had the biggest decline among the 49 companies in the Hang Seng Index as investors had their first chance to react to news of the bid yesterday.
The takeover would give Hong Kong control of a business that sets global prices for base metals, while LME stands to gain greater access to China, the biggest consumer of metals.
The HKEx was cut to underperform by analyst Sam Hilton at Keefe, Bruyette & Woods, and had its earnings estimate cut by Credit Suisse Group AG analyst Arjan van Veen. Both analysts have a HK$100 (US$12.89) target on the shares.
LME shareholders, led by JPMorgan Chase & Co, may vote on the offer by the end of July. If they approve it, the transaction will be reviewed by the FSA. The regulator has three months to consider a completed application from a buyer once it's received, said a FSA spokesman.
The FSA's sole concern is that HKEx doesn't "expose a threat to the sound and prudent management" of the markets operated by the LME, according to the regulator's handbook. While there are no fixed criteria for the review, the FSA will consider the financial soundness of the bidder and the influence the new owner may exert, David Blair, head of financial regulation at Osborne Clarke, a law firm, in London said by e-mail on Friday.
(Bloomberg News)
HKEx shares fell 4.5 percent in Hong Kong yesterday, taking declines to 26 percent since February 18, when the South China Morning Post first reported the bid. The Bloomberg World Exchanges Index has shed 14 percent in that time. The offer of 107.6 pounds (US$168.35) a share, or 180 times LME's 2011 net income, requires approvals from LME's shareholders and the UK Financial Services Authority. It doesn't need shareholder consent in Hong Kong.
The offer price is "extremely expensive," according to a client note from Morgan Stanley written by Anil Agarwal and Isabella He. The LME will remain under the watch of the FSA, meaning the deal may avoid national interest and market power concerns that prompted market regulators and politicians to block other exchange mergers.
"There's a much lower level of political concern about the LME than there would be about the takeover of the London Stock Exchange," said Ruben Lee, CEO of Oxford Finance Group, a London company specializing in financial and commodity markets. "UK regulators will maintain their control over the operations of the exchange. There will be concern about the fitness and the properness of any new owner, but I'm sure that Hong Kong Exchanges & Clearing are going to satisfy that."
HKEx cut to underperform
HKEx had the biggest decline among the 49 companies in the Hang Seng Index as investors had their first chance to react to news of the bid yesterday.
The takeover would give Hong Kong control of a business that sets global prices for base metals, while LME stands to gain greater access to China, the biggest consumer of metals.
The HKEx was cut to underperform by analyst Sam Hilton at Keefe, Bruyette & Woods, and had its earnings estimate cut by Credit Suisse Group AG analyst Arjan van Veen. Both analysts have a HK$100 (US$12.89) target on the shares.
LME shareholders, led by JPMorgan Chase & Co, may vote on the offer by the end of July. If they approve it, the transaction will be reviewed by the FSA. The regulator has three months to consider a completed application from a buyer once it's received, said a FSA spokesman.
The FSA's sole concern is that HKEx doesn't "expose a threat to the sound and prudent management" of the markets operated by the LME, according to the regulator's handbook. While there are no fixed criteria for the review, the FSA will consider the financial soundness of the bidder and the influence the new owner may exert, David Blair, head of financial regulation at Osborne Clarke, a law firm, in London said by e-mail on Friday.
(Bloomberg News)
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