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ICE Still in Contention Over LME

Zacks Equity Research

IntercontinentalExchange, Inc. (ICE) and Hong Kong Exchanges & Clearing Ltd. (“HKEC”) have been requested to resubmit their bids on June 7, for the buy-out of London Metal Exchange (“LME”) by the administrative authorities of the same. This follows the presentation made by the contenders last week at a board meeting organized by the selling company.

LME also mentioned, that on receiving the bids from IntercontinentalExchange and HKEC, it would initiate a voting procedure among its shareholders at an extraordinary general meeting in order to shortlist one of the suitors who would finally own the renowned metal exchange.

The shareholders of the company include some of the biggest names in the investment bank segment, such as JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Barclays Plc (BCS) and Citigroup Inc. (C). It is expected that JPMorgan and Goldman Sachs will either receive a large sum of money for their shares or continue to be the shareholders of the acquiring exchange.

As per the norms set by LME, the prospective buyer will require the approval of at least 50% of the members of the bourse and it will need to attain 75% of the shareholders vote in its favor.

In a close competition with HKEC, to takeover the 135-year old exchange that pioneers in setting benchmark prices for six base metals, IntercontinentalExchange stands a golden opportunity of winning the bid, given its experience in dealing with futures exchanges for over a decade. Also, the Atlanta-based bourse has relevant first-hand experience in warehousing soft commodities.

We believe that the acquisition of LME will strengthen IntercontinentalExchange’s UK presence and increase its customer base to a large extent, subsequently aiding the company’s top line. One of the many benefits for IntercontinentalExchange will be a dedicated exchange dealing with a range of futures and options contracts for non-ferrous, minor metals and steel.

The company’s immense growth potential has armed it with competitive advantage over its peers with respect to the futures market. Moreover its intermittent restructuring programs through acquisitions and spin offs have driven robust inorganic growth, which is reflected in increased assets and global expansion.

We retain our long term Neutral recommendation on IntercontinentalExchange. It also has a quantitative Zacks #3 Rank, which translates into a short-term Hold rating. 

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