HKEx agrees to buy LME for £1.4bn Hong Kong Exchanges & Clearing is set to control the world's largest metals market after the board of the London Metal Exchange recommended its £1.4bn ($2.2bn) bid. The 135-year-old LME has been at the centre of a global bidding war as the industry's heavyweights attempted to buy one of the last member-owned exchanges in the world. IN Exchanges Consolidation HKEx said on Friday that it agreed to buy the LME for £1.388bn in cash, with the transaction expected to close in the fourth quarter. The deal, if it is approved by the LME's shareholders, is a coup for HKEx, catapulting it from the insular world of Hong Kong equities into the global league of exchanges. The LME, the centre for global metals trading with benchmark contracts for copper, aluminium and zinc, was seen as one of the last great prizes in a wave of consolidation in the industry. The sale, if it goes ahead, would deliver a windfall to the banks and brokers who own the LME. At a valuation of £1.4bn, JPMorgan would receive £151m for its shares, Goldman Sachs would get £132m and the Bagri family, owners of Metdist, would receive £130m. The LME's board chose HKEx ahead of rival bids from IntercontinentalExchange, CME Group and NYSE Euronext - all US-based. The deal will shift the centre of gravity in the world of exchanges and risk management away from the west - in particular Chicago and London, where risk management in commodities has been based since the 19th century - to the east. HKEx has pledged to increase Chinese participation in the LME, as well as helping the exchange to register warehouses in China. It said it would not raise fees on the LME - a contentious issue that has already divided members - until 2015. The prospect of an acquisition by HKEx has unnerved some industry executives and traders because the Hong Kong government appoints six of its 13 directors and is the largest shareholder. However, people familiar with the deal said HKEx had made an "extremely sound and robust governance proposal." Charles Li, HKEx chief executive, said the acquisition represented "a unique opportunity for us to acquire in one stroke a position of global leadership in the commodities market." Martin Abbott, chief executive of the LME, said: "The LME's global benchmarks plus HKEx's pre-eminent market position in Asia, its IT and trading resources and clearing expertise will cement the LME's position as the world's foremost base metals trading venue." The sale must still be approved by 75 per cent of the LME's shareholders. However, people familiar with the process are confident that shareholders will vote for a sale as the bid has promised to maintain several key aspects of the LME's business model, including the "ring," the last open-outcry trading floor in Europe. Moreover, a valuation of £1.4bn for the LME is equivalent to £107.60 a share, 22 times the last traded price before the sale process was announced, and 180 times last year's net profit. But CK Chow, HKEx chairman, speaking at a cocktail reception to mark the 12th anniversary of the creation of HKEx on Friday said: "The LME today is a mutual. So the important thing is not the past performance but what can be done in the future. We have taken a bold step to enter a brand new market. The LME was advised by Moelis, and HKEx was advised by Rothschild and UBS. A shareholder vote is expected in July ahead of the Olympics. The deal is being funded by a bridge loan from UBS, China Development Bank, Deutsche Bank and HSBC, but HKex will refinance this mostly with a new equity issue after the deal has closed, which is expected to happen in the fourth quarter, according to a person close to the deal. Additional reporting by Robert Cookson and Paul J Davies in Hong Kong