Bidders for LME may cut costs to justify price

Bidders for the London Metal Exchange may need to slash costs, boosting electronic trading and shifting to self-clearing to justify a rich price tag of £1bn or more.

Some of the changes might not take place immediately as bidders seek to reassure wary LME members that own the world’s premier exchange for industrial metals, said analysts and experts.

Plans by one of the potential suitors, InterContinental Exchange, might even include offering to share profits with sceptical member-owners to get them on board, one of the analysts said.

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A takeover could also mean eventually scrapping open outcry trading at the LME, one of the last bastions of floor trading, several of them said.

The LME declined to comment.

Bidders include ICE, CME Group, NYSE Euronext and Hong Kong Exchanges and Clearing Ltd, sources have said.

In late February, the LME board considered a first round of non-binding bids, and last Wednesday both ICE and CME left doors open for making a bid.

But paying £1bn and upwards is unlikely to be attractive given the present set-up of the LME which has kept fees low for members and generates modest profits.

That price tag would mean a valuation ratio nearly four times the level of other exchanges, based on estimated LME volumes and profits last year, according to ana-lysts.

“The LME is run as a club really, so if it were to be acquired you would have to ramp up the fees, whoever bought it,” said Herbie Skeete, managing director at exchange consultants Mondo Visione.