Magic Circle firms Allen & Overy and Freshfields Bruckhaus Deringer have played leading roles in the Hong Kong Exchanges & Clearing’s (HKEx) recommended cash offer of 1.4 billion pounds ($2.2 billion) to buy the London Metal Exchange (LME), the world’s largest marketplace for industrial metals.
The deal, which is still subject to approval by LME shareholders, would give the HKEx a lucrative commodity trading platform, and strengthen its position in the major market against the Shanghai Futures Exchange, which trades in base metals.
London corporate partner Alistair Asher and counsel Ben Koehne led Allen & Overy’s team that advised the HKEx, while corporate partners Bernardine Lam and Gary McLean assisted from the Hong Kong office. Partners Damian Carolan and Alan Ewins provided regulatory advice, while Ian Powell and David Oppenheimer dealt with financing matters.
Advising LME were Freshfields’ London-based corporate partners Sundeep Kapila and Michael Raffan, employment, pensions and benefits partner Simon Evans, tax partner Colin Hargreaves, and finance partner Ian Frost. Royce Miller, the head of the Asia financial services for Freshfields, assisted the LME on Hong Kong regulatory matters.
Under the terms of the offer, HKEx will acquire 100 percent of LME Holdings’ issued and outstanding shares. The Hong Kong bourse will finance the acquisition, where total traded value was $15.4 trillion last year, through its existing funds and an additional £ 1.1 billion bank loan.
HKEx beat InterContinental Exchange, a U.S. commodities exchange, in a contest that began in September last year with about 15 expressions of interest, said Reuters.
Tom Hine, LME’s general counsel and head of enforcement, said in a statement: “This is a step-change deal for LME, and one that will help maintain our position as one of the world’s foremost exchanges.”
“HKEx’s offer for the LME is a landmark transaction in the industry, and involves one of the last member-owned exchanges in the world,” said Asher of Allen & Overy. “HKEx’s successful bid will enable it to further its strategy to expand beyond equities and equity derivatives into commodities to capitalise on the need to support the growing metals consumption in Asia.”
Several shareholder members who own and use the LME are concerned that a sale might change its unique, complex structure of futures trading and low fees. But HKEx chief executive officer Charles Li promised that the exchange would preserve the LME brand, the open outcry trading system, and the structure until at least the beginning of 2015. It will also refrain from raising fees for contracts currently traded on the LME beyond levels that take effect next month, according to Reuters.
The HKEx has to win over LME shareholders including the likes of Goldman Sachs, JP Morgan, commodities leader Glencore, small metals brokerages, mining companies, and industrial users.
“There are all sorts of upsides if it happens, expanding the market into Asia, perhaps 24-hour clearing and execution…but I don’t know which way people are going to vote,” Malcolm Freeman, Europe sales director for INTL FC Stone, an LME member firm, told Reuters.
Moelis & Co were the financial advisers for the LME, while Rothschild and UBS advised HKEx. ALB
Kanishk Verghese is North Asia journalist at ALB. Follow him on Twitter: @ALB_Magazine.
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