2nd UPDATE: London Metal Exchange Courted By Potential Suitors

The London Metal Exchange said Friday that it had been approached by several suitors and would start a formal review of offers that could value the market-leading platform at around GBP1 billion ($1.55 billion).

The member-owned LME has seen record trading volumes for derivative contracts involving copper, aluminum, zinc and other metals in recent sessions, while buyer interest has been kindled by plans outlined in May to explore setting up its own clearinghouse, a move that could boost revenue and provide more flexibility in launching new contracts.

The 134-year-old exchange is the world's largest venue for trading metals-based futures and options, a segment where growth trailed only that for contracts in currencies and agricultural commodities last year as global volume rose 39%, according to the Futures and Options Association.

LME volume is up 18% year to date and hit an all-time record on Thursday, and the scarcity value of an exchange that sets global benchmarks in contracts such as aluminum futures may fuel interest despite the exchange industry's patchy consolidation record in recent months.

Chief Executive Martin Abbott said in a statement to members that the LME had received "several expressions of interest." Its board has retained Moelis & Co. as a financial adviser, and Abbott said that the review process--which is at an early stage--"may or may not lead to an acceptable offer for the company being received."

A person close to the situation said the proposals received pointed to a valuation of around GBP1 billion. CME Group Inc. (CME), IntercontinentalExchange Inc. (ICE) and Singapore Exchange Group (0068.SG) are the most likely bidders, according to this person, though other firms may also be interested.

An acquirer like CME or ICE that already runs a London-based clearing firm could incorporate its metals products alongside services for related markets, like energy.

CME, the world's largest futures exchange operator, trades metals through its New York-based Comex arm, though executives have in recent months sworn off any large-scale acquisitions.

The Chicago-based CME and Atlanta-based ICE declined comment. The Singapore Exchange--which has a partnership with the LME centered on jointly traded contracts linked to the price of zinc, copper and aluminum--was not immediately available for comment.

In the highly automated world of financial exchanges, the LME appears something of a relic. It is among the last remaining exchanges still owned by members, and operates "open outcry" trading on a physical floor alongside electronic and phone-based transactions. An estimated 80% of the world's trade in non-ferrous metals flows through its systems each day, though the Shanghai Futures Exchange has been expanding fast with its rival zinc, copper and steel contracts.

A potential acquisition of the LME follows a wave of exchange deals proposed over the past 12 months, though just a few have survived scrutiny from regulators and shareholders.

Deutsche Boerse AG's (DB1.XE, DBOEF) proposed acquisition of NYSE Euronext (NYX), the sector's biggest potential transaction, is entering the final stages of a lengthy antitrust review in Europe. It has outlasted other combinations, such as the London Stock Exchange Group's (LSE.LN) planned merger with TMX Group Inc. (X.T) and Singapore Exchange's attempted takeover of Australia's ASX Ltd. (ASX.AU), both of which fell apart in recent months.

The LME, founded in 1877, trades forward and spot contracts in copper, aluminum, lead, zinc, tin, molybdenum, cobalt and steel billet, among other products. Its long-established role as a hub for trade in fast-growing metals markets make it an attractive addition to companies like CME or ICE that already run resource-trading franchises.

Singapore Exchange already maintains a partnership with the LME, centered on jointly traded contracts linked to the price of zinc, copper and aluminum.

-By Matt Day, Dow Jones Newswires; 212-416-4986; matt.day@dowjones.com

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