Last month’s “informal” takeover bid by the London Metal Exchange (LME) is the latest, and likely not the last, for the venerable Baltic Exchange.
A news story last month revived speculation on the future of the Baltic Exchange, the two centuries-old, London-based clearing house for shipping contracts, an organization that also provides widely used freight market prices, indices, reports and data on the maritime industry.
The Reuters report cited unnamed sources as saying the exchange received a “very informal” approach from the London Metal Exchange of interest in a possible acquisition offer. The report suggested a purchase price of around 100 million pounds.
Takeover Bids & Bidders
A spokesman for the Baltic Exchange said it “won’t confirm or deny” any reports related to a possible deal. A spokesperson for the London Metal Exchange also declined to comment.
A source with knowledge of the Baltic Exchange said it has received over the years “various informal overtures, but nothing formal.”
The London Metal Exchange itself was the target of competitive takeover bids. In July 2012, the Hong Kong Exchanges and Clearing Ltd. paid 1.39 billion pounds for the LME, besting Intercontinental Exchange Inc., which owns the New York Stock Exchange.
Hong Kong Exchanges operates Hong Kong’s stock and futures exchange. It also is a joint venture partner with the Shanghai and Shenzhen stock exchanges on something called the China Exchanges Services Co., which offers China-Hong Kong cross-border indices.
As China continues to develop its shipping industry, links with the Baltic Exchange make sense. Late last month, the exchange announced what it called “close collaboration” with the Ningbo Shipping Exchange. The first step was a listing on the Baltic Exchange provided by the Ningbo Exchange of container rates from Ningbo to Europe and the Middle East.
Baltic Exchange Complexities
Even if the LME makes a formal bid, buying the Baltic Exchange wouldn’t necessarily be easy. About 650 companies comprise the exchange. The bulk of companies are shipbrokers, although membership also includes shipping companies, dry and wet bulk charterers, banks and law firms. Some 380 shareholders own the exchange. The majority of companies, although not all, hold shares. Shares can be bought and sold. However, no one company can hold more than 10% of total shares and only UK companies can own shares.
A 15-member board of directors oversees the exchange’s governance and would be responsible for bringing any takeover offer to shareholders for a vote.
The timing of the news story is odd. Last month, the Baltic Exchange announced shareholders would receive almost 10 million pounds in interim dividends, a move that presumably would reduce the value of the exchange and make a sale less appealing to shareholders. The announcement said that the exchange’s investments as of March 31, 2015 totaled 19.9 million pounds, while its building was valued at 16 million pounds in 2013, the last time a valuation was made. The exchange was distributing dividends, the announcement said, because of a lack of need for funds and what is perceived to be a more difficult investment climate.
For the year ended March 31, 2015, revenue at the Baltic Exchange totaled about 6 million pounds. Its profit totaled 1.34 million pounds.
The Baltic Exchange was the scene of a notorious bombing by the IRA in 1992. Some of its money on hand comes from an insurance settlement related to the damage.
