When the London Metal Exchange dropped its mutual status 11 years ago and handed out shares to its members, some saw little point in keeping them.
Not so Raj Bagri and his son Apurv, owners of Metdist, a small metals trader and a dealer on the LME’s open outcry ring. They mopped up many of the shares on offer, driven by the belief that the 130-year-old exchange’s value would one day be realised.
“They were acquiring shares when nobody else wanted them,” says an executive at a large metals trading company who has worked with Lord Bagri. “Nobody really believed that the model could change.”
The Bagri family now holds the second-largest stake in the LME, the centre for global metals trading, just behind Goldman Sachs, putting it in the middle of a bidding war that could see its shareholding valued at more than £90m.
The historic exchange, which began life above a hat shop in the heart of the City of London in 1877, will go through the process of soliciting formal bids later this year after receiving more than 10 preliminary expressions of interest in a sale that could value it at £1bn ($1.6b).
The potential sale marks the culmination of a remarkable career in the metals industry for Lord Bagri, who started out as a filing clerk in a trading company in Calcutta in 1945 and went on to become chairman of the LME.
Along the way, he was instrumental in the transformation of the exchange that would eventually make a sale possible. After setting up Metdist in 1970, he was elected chairman of the exchange in 1992, the first non-Briton to take that role. His portrait still hangs near the entrance to the LME’s boardroom.
Crucially, it was under his watch in 2000 that the exchange demutualised. “He always took a view at time of demutualisation this was beginning of change for the LME,” says a person who knows him well.
Not everyone is willing to embrace change. Some members and users of the LME are reluctant to see it lose its clubby atmosphere and fear that a change of ownership could lead to the closure of the ring, the last open outcry trading pit in Europe.
More prosaically, all agree that a change of ownership is likely to mean an increase in fees. “We run it like a golf club: we run it for the benefit of the members. If you change it to a for-profit model, you’re going to have to whack the fees up,” says one top-10 shareholder, who describes himself as “dead-set” against a sale.
Such opposition could pose a problem for bidders for the LME, likely to include CME Group, ICE and SGX, who would need the support of 75 per cent of shareholders. Martin Abbott, LME chief executive, told the Financial Times last week that it would take “more than just money” to win control of the exchange.
The Bagri family’s vote will also be crucial. But they, along with many exchange members, are said to be pragmatic. “The clock can’t go back to where it was; something has to change now,” says one large shareholder, echoing a widely held view.
Of course, a sale would bring a large cash windfall, but the Bagri family is already wealthy. Their holding company, Minmetco, reported shareholders’ funds of $79m at the end of March 2010, according to a Companies House filing. Indeed, Lord Bagri was one of five peers to give up their seats in the House of Lords last year rather than relinquish their “non-dom” tax status.
Regardless, people who know the family say their main motivation in buying shares in the LME was not money, but love. As one puts it: “The family has this great love affair with the metals industry.”
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