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JPMorgan Gains in LME Takeover

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With the takeover of the London Metal Exchange (LME) by Hong Kong Exchanges and Clearing Limited (HKEx) at £107.60 per share, the value of stakeholders’ investments in LME would be enhanced. JPMorgan Chase & Co. (JPM - Analyst Report), the largest investor in the LME, will get double the value of its investment after the completion of the takeover. The takeover awaits approval by the U.K. Financial Services Authority and shareholders of the LME.

In November 2011, JPMorgan increased its stake in the LME by buying an additional 4.7% stake (600,000 ‘A' shares) from MF Global Holdings Ltd. , which went bankrupt in 2011 for £25.2 million ($39.6 million). Currently, JPMorgan holds 1.4 million shares in LME, which is valued at £150.6 million ($236.8 million) after the takeover announcement.

JPMorgan also bought 25,000 ‘B' shares of the LME that were held by MF Global, for £2 million ($3.125 million), through another deal. While these shares gave the company the right to trade on the LME as a category one member, the ‘A' shares will entitle it to economic and voting rights. According to LME standards, in order to trade on the trading floor, category one members must own at least 25,000 ‘B' shares in the exchange.

Apart from JPMorgan, other large stakeholders in the LME include The Goldman Sachs Group, Inc. (GS - Analyst Report) with 1.23 million shares valued at £132.3 million ($208 million) and Metdist, a privately owned metals trader, with 1.21 million shares valued at £130.4 million ($205 million). The ownership of the LME is restricted to nearly 94 members.

Hence, with the sale of the LME, the stakeholders have recorded significant capital gains. Also, HKEx plans to maintain LME’s brand name and will regulate the exchange in London. Moreover, with China’s penetration in the world of financial markets, LME stakeholders will be benefited over the long term.

Currently, JPMorgan retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.

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