McGraw-Hill, the financial information company that owns S&P Indices, and CME Group, the derivatives marketplace and 90% owner of the CME Group/Dow Jones joint venture that owns Dow Jones Indexes, have agreed to establish a joint venture combining the two index businesses.
McGraw-Hill will contribute its S&P Indices business and the CME Group/Dow Jones joint venture will contribute the Dow Jones Indexes business to create S&P/Dow Jones Indices, with expected annual revenue of more than $400 million. Approximately $6 trillion in assets are believe to be benchmarked against the indices.
McGraw-Hill will own 73% of S&P/Dow Jones Indices, CME Group will own 24.4% through its affiliates and Dow Jones will own 2.6%.
S&P/Dow Jones Indices is expected to be operational in the first half of 2012, subject to regulatory approval and customary closing conditions. The new company will become part of McGraw-Hill Markets. McGraw-Hill announced in September it would split its education and markets businesses into two separate companies.
CME Group will pay S&P Indices a share of the profits of its equity product complex, which is CME Groups trading and clearing business for futures, swaps and options on futures. CME Group will maintain exclusive rights to the E-mini and other S&P indexed futures, plus it will now include swaps.
By combining our unique and complementary strengths, we are creating a leading global index provider with the breadth and depth to provide both retail and institutional investors with the cutting-edge products and services they need to make sound investment decisions in todays complex markets, says Harold McGraw III, chairman, president and CEO of McGraw-Hill. In addition, McGraw-Hill Markets will benefit from the new license agreement that changes S&Ps Indices relationship with CME Group from a transactional fee-per-trade model to a partnership in which S&P Indices participates in the profits of CME Groups overall equity product complex.
All current indices will retain their brand names, either S&P or Dow Jones, and flagship indices The S&P 500 and the Dow Jones Industrial Average will continue to be separately maintained and licensed.
As part of our global growth strategy, CME Group has continued to expand our index services business, both through our own index futures and options products as well as through new product development at our Dow Jones Indexes subsidiary, says CME Group CEO Craig Donohue. The expanded partnership announced today not only creates a leading index services provider that will benefit our customers and shareholders, but also will deliver new opportunities for innovation, including a long-term, ownership-based exclusive global license for CME Group to use the S&P 500 for futures and options on futures products going forward.
Alexander Matturri, executive managing director of S&P Indices, will be CEO of S&P/Dow Jones Indices. The board of the new company will be chaired by Lou Eccleston, president of McGraw-Hill Financial, and will include five directors designated by McGraw-Hill and two by CME Group.
Additionally, McGraw-Hill will acquire London-based Credit Market Analysis Ltd. (CMA), which provides independent data on the over-the-counter markets, from CME Group.
(CG)