The London Metal Exchange (LME) board met on Thursday to examine non-binding bids for the world's biggest marketplace for industrial metals, facing a possibility the offers may be lower because users of the bourse oppose its plans for higher fees.

After the meeting ended board members declined to give any immediate details on its outcome.

It was a good meeting, said board member Gabriela Grillo, of the German family-owned Grillo group, without elaborating.

A rare public spat between users of the exchange and the LME over the fee it announced in December forced the exchange to go back to its board on Thursday to review opposition to the change, as well as look at the bids from around half of the roughly 15 companies that had expressed interest.

Successful introduction of the fees would increase revenue and make the exchange a more attractive buy.

Sources close to the matter say the 135-year-old institution on London's Leadenhall Street, where metals including copper, aluminium, nickel and zinc are traded by open outcry as well as electronically, is likely to make concessions on fees and delay introduction by a few months.

Bidders include CME Group , Hong Kong Exchanges and Clearing Ltd (HKEx) <0388.HK>, NYSE Euronext and the InterContinental Exchange (ICE) , sources and media reports have said.

Some of those bidders, sources have said, are watching closely how the LME resolves the dispute, as any revision could dent projected extra revenue included in its valuation.

Well-placed sources told Reuters that the LME's new trading fee, scheduled to start on March 1, could account for up to two thirds of its total valuation.

Analysts and industry sources have valued the exchange at 500 million to 1.5 billion pounds based on expectations of higher earnings boosted by new products and by its plans to build its own clearing business.

But some analysts question those valuations.

The LME reported revenue of around 50 million pounds for 2010, so any price around 1 billion pounds values the exchanges at some 20 times revenue, Peter Lenardos, an analyst at RBC Capital Markets, said.

Even if the management doubled revenue in the medium term they (any bidders) are still paying 10 times revenue so the current valuations look very full, Lenardos said.

Personally I'd not want to be a shareholder in any company paying that for the LME.


The LME operates on a constrained-profit model and has so far kept fees low for the trading houses and banks that own the exchange and use the market.

LME Chief Executive Martin Abbott said last month the new fee was aimed at boosting revenues needed to update technology, raise capital to meet expected regulatory requirements and to take on increasing competition.

High-level members of the exchange have said the trading fee increase is window dressing to enhance the LME's attractiveness for potential suitors by steeply raising revenues.

The business just isn't that profitable, even if you treble fees, volumes will go down, I can't see why anyone would pay these sums for the exchange, said a trader for a ring-dealing member of the exchange.

I don't think it will get sold, there's too many members opposed, and you only need 25 percent to vote against.

The impact of the fee on a heavily traded spread on the exchange, known as tom-next, has aroused particularly strong opposition.

Concessions will be made regarding tom-next (. . .). Concessions are being taken regarding that. That should be surfacing, said a source familiar with the matter.

Tom-next, a spread between tomorrow and the cash date, accounted for up to 29 percent of LME futures turnover last year, depending on the contract.

(Additional reporting by Luke Jeffs in London and Josephine Mason in New York; Writing by Susan Thomas; Editing by Veronica Brown and Anthony Barker)