* Incentive scheme could be worth as much as 21 million pounds
* Abbott, selected LME officials, take part in scheme
* Abbott could get 7 million pounds - sources
By Susan Thomas
LONDON, May 18 (Reuters) - London Metal Exchange (LME) Chief Executive Martin Abbott may pocket millions from a sale of the 135-year-old institution, possibly a big chunk from as much as 21 million pounds.
If the LME, the world’s largest metals marketplace, is sold for the 1 billion pounds ($1.58 billion) it has been valued at, shareholders would get 77 pounds per share, a roughly 15-fold premium from the 4.9 pounds LME ordinary shares traded at in July last year.
For former journalist Abbott and “selected members of staff” on the LME’s incentive scheme that could mean as much as 21.2 million pounds.
That is based on the 302,347 notional shares in the scheme, using 77 pounds per share and after subtracting the exercise price, according to Reuters calculations using figures in the LME’s 2011 financial statement.
As chief executive, Abbott could account for a sizeable share of that. Two metals industry sources have said he could make 7 million pounds.
Currently the notional shares are valued on a formula that takes into account the company’s profit and tax and the price of its A, or ordinary, shares.
But the scheme allows that in the event of a change of control at the LME, the unit price value of the notional shares could take into account the ultimate transaction price.
In its 2011 annual report, the LME envisages a possible “material upward adjustement” to the option fair value if there is a sale.
The LME said in an emailed response to Reuters’ queries that the company has seen a more than ten-fold increase in its share price since the scheme started in 2008.
It declined to comment on figures, but said details of how the scheme would work out if the exchange is sold would be disclosed in documentation sent to shareholders and would only crystallise if shareholders vote in favour of a deal.
Abbott is one of a four-member team scrutinising bids.
“Is it a conflict of interest? I don’t think so. You can only wish the guy luck,” said one head of a shareholding metals trading unit.
CME Group, Hong Kong Exchanges and Clearing Limited and Intercontinental Exchange are competing to buy the independent exchange, whose contracts serve as global benchmarks for metals such as copper, aluminium and zinc.
It is not unusual for chief executives to take part in a sale process and profit from incentive schemes when the deal is done. The LME said their scheme is based on “exacting performance criteria for increasing shareholder value”.
The trading head noted that the 1 billion pound price tag no longer looked extravagant after NYSE Euronext fell out of the race this week when its reported 800 million pound offer was deemed too low.
Not bad for a company that operates on a constrained-profit model, keeping its fees low for its shareholding members who use the exchange. It reported net profit of just 7.7 million pounds last year.
“Those are crazy numbers. And it gets to the stage where shareholders will say ‘well, what’s the point of holding on relative to my costs potentially increasing,” the metals industry source said.
“Of course there is the potential for us to be bled dry afterwards. There’s no such thing as a free lunch.”
For Abbott it is a long way from the days when he was so badly paid as a journalist at fashion trade magazine Drapers Record that he had to walk to work because he could not afford the train fare.