Chicago is the intellectual hometown of Milton Friedman, the influential free-market economist who developed many of his libertarian theories at the U. of C. But you’d never guess that based on the city’s recent intervention to help the Chicago Mercantile Exchange in a bidding war for the Chicago Board of Trade.
Hailing the deal, Mayor Daley visited the Board of Trade on October 31 to meet with Carey and Duffy and offer his blessings. “I want to thank the Chicago Board of Trade and the Chicago Mercantile Exchange for its vision, execution, and willingness to take a risk on the future of our great city,” Daley said in his remarks.
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But wait, not so fast. On March 15, Intercontinental Exchange, known as ICE, entered the picture with a counteroffer that forced CBOT stockholders to think twice about selling to the Merc. At $10 billion, the ICE bid offered CBOT stockholders more money. It also pledged to allow the exchange to keep operating as the Chicago Board of Trade and agreed to give shareholders a 51.5 percent controlling stake in the new company, which would be run by ICE’s chief executive, Jeffrey Sprecher. Under the Merc’s proposal, CBOT shareholders would control just over 30 percent of the company’s shares.
“On behalf of Mayor Richard M. Daley, the City of Chicago is prepared to offer the City’s assistance to facilitate the real property acquisition and proper-ty rehabilitation that is part of your historic efforts to merge,” Healey wrote. “We understand that as part of your merger, the CBOT building will become the main location for ‘Open Outcry’ trad-ing. The areas of the CME’s space at 20 S. Wacker currently devoted to trading floors would be converted to office space. Rehabilitation and enhancement of other aspects of both buildings, including the associated existing office as well as other facilities in the city, will be undertaken.”
As Crain’s also reported, the money is most likely to come out of the city’s teeming tax increment financing treasure chest, an unregulated $400-million-a-year property tax slush fund that the mayor has virtually unregulated access to.
The Merc hadn’t asked the city for any assistance, according to Allan Schoenberg, a spokesman for the exchange. “My understanding is that it was an unsolicited letter of support for the merger,” Schoenberg says.
Still, traders tell me Healey’s letter didn’t win the deal for the Merc by itself. By the time it was written, the Merc had almost matched ICE’s price, so there was no strong incentive for CBOT stockholders to accept the competing bid. But Healey’s offer certainly didn’t hurt the Merc’s chances in the bidding war. It was $40 million more that CBOT would receive had they sold to ICE. And it sent an unmistakable sign as to which of the board’s two suitors Daley preferred.
