Price range set for Merc's IPO
October 25, 2002
BY DAVID ROEDER BUSINESS REPORTER
The Chicago Mercantile Exchange disclosed Thursday that it expects to sell almost 10 percent of itself to the public at a price of $31 to $34 a share.
The Merc, the nation's largest futures exchange and potentially its first financial market to issue stock, said it will sell 3 million shares, raising from $93 million to $102 million. The timing of the initial public offering wasn't disclosed, but the announcement of a price indicates it could come by the end of this year.
The targeted share price was revealed in a filing with the Securities and Exchange Commission by Chicago Mercantile Exchange Holdings Inc., the Merc's parent company. It has applied with the New York Stock Exchange to be listed under the ticker "CME.''
Just two weeks ago, the Merc took critical steps to make its shares more attractive. It announced it would start paying an unspecified quarterly dividend to shareholders, who currently consist of its former "seatholders,'' mostly individual traders and trading firms.
The Merc's board also realigned executive responsibilities, establishing a No. 2 officer behind its president and chief executive, James McNulty.
The Merc's owners hold 31.8 million Class A shares, the kind that would be issued in the IPO. They also have 3,138 Class B shares, which confer the right to trade at the exchange.
If the IPO succeeds, it would imply an overall value to the exchange of $1.8 billion, based on the current prices for Class A and Class B shares in the Merc's internal market.
An IPO has been the Merc's goal ever since it took the historic step in November 2000 of reorganizing as a for-profit company. Stock and futures exchanges typically have been member-owned, giving them attributes of a private club.
Emphasizing a profit motive, reorganization advocates said, would make the exchange more responsive to competition that includes markets overseas and exchanges that exist only as computer networks. The core of the Merc's business is its trading floors, but it also operates a busy electronic trading network called Globex.
Merc executives declined to discuss their IPO plans.
The bear market has been inhospitable for IPOs, but the Merc is tempted because its has posted robust financial numbers. Uncertainty about U.S. interest rates and the direction of the stock market has sent volume soaring at the Merc, where many try to hedge financial risks.
Through September, the exchange's volume this year was 413.8 million contracts, topping its full-year mark of 411.7 million in 2001. For the first six months of the year, it reported a profit of $38.8 million, $1.31 a share, on revenue of $208.6 million.
But the prosperity has come with infighting. Longtime Merc members, worried that their influence will wane post-IPO, have complained about management decisions and McNulty's compensation package.
An IPO could substantially enrich McNulty. According to the SEC filing, McNulty has options on 2.8 million Class A shares at an average exercise price of $19.49. Sixty percent of those options are vested, meaning that an IPO at $34 gives him a paper profit of $24 million.
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