Hyatt Hotel's brand name boosts IPO

So far, so good for the Pritzker family's $950 million cash extraction from Hyatt Hotels (H). The Chicago-based company completed its initial public offering Thursday with a 38 million-share sale that opened at $25 each. By the end of the first day, the shares were at $28 and the underwriters bought an additional 5.7 million shares. Friday, they closed again at $28.

The price gain indicates investors shrugged off worries about the family's infighting and slackness in demand for expensive lodging. Hyatt has its risks just like anything else, but it has a brand name that's seldom matched by a new name in the stock market. Also, it has a handle on debt compared with many of its peers.

But by choosing to play in the public league of the investment world, the Pritzkers invite unwanted attention. In Chicago, its hotels are a target in negotiations that the industry is having with the hotel workers union Unite Here Local 1. The union seizes on the comparison of the big Pritzker payday with the company's attempts to cut health insurance for maids. In San Francisco, the hotel workers union has called a three-day strike against a Hyatt hotel.

Hyatt shares probably offer a lot of upside, but know what you're getting into. The Pritzkers need the money to mollify dissident members and let more members of the clan cash out later if they wish. The company got no part of the $950 million for the family, but it did receive $143 million from the additional shares the underwriters bought.

The deal makes public stockholders a junior partner that the Pritzkers can freely ignore. The family's control of shares that carry super-duper voting rights means its holds 78 percent of the voting power while owning 62 percent of the company.

Analyst John Arabia of the research firm Green Street Advisors said, "Simply put, Hyatt's corporate governance is the worst in our entire coverage universe. The existing owners are sending a strong signal to outside public shareholders that the Pritzker family will firmly control Hyatt, even if the family's economic ownership interest falls below 50 percent."

BUSINESS BLOTTER: As if we need it, here's another reason to despise the big banks. JPMorgan Chase (JPM) has paid $75 million in fines to settle some astounding charges. Without admitting or denying fault, the bank settled allegations that it paid $8 million to pals of Jefferson County, Ala., commissioners in return for the underwriting business on a $1.4 billion sewer bond deal. Jefferson County includes Birmingham, whose mayor was convicted on related fraud charges. Even by Chicago standards, $8 million in bribes is pretty serious swag. But it gives you an idea of what was at stake -- millions of dollars in underwriting fees.

Also, the Bond Buyer said an ongoing civil lawsuit by federal regulators against two former managing directors at JPM alleges $4.4 million was secretly funneled to Goldman Sachs Group (GS) so it would stay out of the county's bond business.

Meanwhile, a former executive at California tomato processor SK Foods pleaded guilty to bribing purchasing managers at major food companies to buy tomato products at high prices from 2004 to 2008. Purchasing managers at Kraft Foods (KFT), Frito-Lay and B&G Foods have pleaded guilty in the case. You paid for the scheme at the grocery store.

We think of "pay to play" as a government contracting phenomenon, but I wonder if it's really much more common in private business.

THE CME BLENDER:This has to be a bullish sign for shares of CME Group (CME), the owner of the Chicago Board of Trade, the Chicago Mercantile Exchange and, lest we forget, the New York Mercantile Exchange. CME said last week it is on track to deliver $60 million in annual cost savings from its August 2008 acquisition of the New York Merc, best known as the home for energy trading. CME said it has combined membership and fee systems, integrated the clearing of contracts and merged Nymex and its affiliated Comex into one facility in New York. Also, Nymex.com within days will be no more.

Keeping an operation in New York was a part of the deal. "We see New York as a vital part of our growth strategy in both exchange-traded and over-the-counter markets," said CME Chief Executive Craig Donohue.

But it's not as if these Chicago guys are becoming Yankee fans. Now that this deal is being digested, it's only a matter of time before CME starts casting covetous eyes at the Chicago Board Options Exchange. The CBOE still has legal issues to settle over its ownership, a matter that probably will take a few months. But once that's done, a CME-CBOE deal seems logical.

CLOSING QUOTE: "Small business owners feel they do not have the need for more employees and, in fact, see sizable portions of their staff as an unnecessary expense." -- Paul Rauseo, managing director, George S. May International, discussing his Park Ridge-based company's survey of more than 800 owners of small businesses