McGraw-Hill, CME Group to form index JV

McGraw-Hill, CME Group to form index JV

Stock Market Predictions

(Global Markets) - McGraw-Hill Cos Inc (MHP.N) and CME Group (CME.O) will form a joint-venture to combine some of Wall Street's most well-known indicators, including the Dow Jones industrial average and the S&P 500.

McGraw-Hill, owner of the S&P Indices, said it will hold a 73 percent stake in the venture and expects the agreement to immediately add "a couple of cents" to its annual earnings.

The deal is the latest step in McGraw-Hill's restructuring of its portfolio of businesses, which also include Standard & Poor's credit ratings, other financial and market information, and textbooks for children and college students. Dissident shareholders have been pushing the company to move faster with the overhaul, charging that the mini-conglomerate has fallen short of its potential.

In September McGraw-Hill outlined plans to split into two separate publicly traded companies, one for its education business and one for its financial and markets businesses.

At the heart of the CME deal is a change in the 30-year relationship between the two companies in which McGraw-Hill has licensed its indexes to the Chicago-based operator of markets in return for per-trade fees. In the joint-venture, McGraw-Hill will take a share of profits from all of CME's stock-related products instead of collecting licensing fees.

CME Group will control 24.4 percent of the joint-venture, while Dow Jones will hold the remaining 2.6 percent stake. CME owns 90 percent of a CME Group/Dow Jones joint venture and News Corp, (NWSA.O) owner of the Dow Jones name, holds the rest.

"It is a big announcement," said Douglas Arthur, an analyst at Evercore Partners. "The index business is very lucrative, big and growing. You are taking two big players and combining them to develop more products and secure long-term relationships."

The companies said the S&P 500 stock index and the Dow Jones industrial average will continue to be maintained separately.

S&P/Dow Jones Indices will have annual revenue of more than $400 million and begin operations in the first half of 2012, the companies said in a statement.

Operating profit margins will be more than 50 percent and annual revenue will rise to more than $435 million in the first year, Terry McGraw, chief executive of McGraw-Hill, said in a conference call with analysts.

McGraw-Hill will report results from the venture as part of its consolidated financials. CME will report its stake as an equity interest. CME said that the deal will not change its 2012 earnings because the revenue it gives up to McGraw-Hill will be offset by not having to pay licensing fees.

The joint-venture will be headed by Alexander Matturri, executive managing director of S&P Indices.

For McGraw-Hill, the new venture should bring more attention from investors to its index business, which is now overshadowed by S&P credit ratings, Arthur said.

Shares of McGraw-Hill and CME were down less than 1 percent in Friday morning trading after the announcement.

McGraw-Hill was advised by BofA Merrill Lynch, Goldman Sachs and Deutsche Bank. Barclays Capital acted as exclusive financial adviser to CME Group.

(Reporting by David Henry in New York and A. Ananthalakshmi in Bangalore; Editing by Joyjeet Das, Viraj Nair and Steve Orlofsky)

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McGraw-Hill and CME eye indexes JV: source

McGraw-Hill and CME eye indexes JV: source

Stock Market Predictions

(Global Markets) - McGraw-Hill Companies Inc is in advanced talks to merge its S&P Indices business with CME Group Inc's Dow Jones Indexes, a source familiar with the situation said on Thursday.

A deal would bring together some of the oldest and most widely followed U.S. indexes including the Dow Jones Industrial Average and the S&P 500.

Under the terms of the deal being discussed, McGraw-Hill would own the majority of the joint venture and manage it, while CME would own about 25 percent, the source said.

News Corp's Dow Jones & Co would also own a minor stake, the source said.

The deal has not been finalized and the terms could change, the source said, adding that the talks have been going on for more than a year.

McGraw-Hill and CME declined to comment. News Corp was not immediately available for comment. The story was first reported by the Wall Street Journal.

Standard & Poor's maintains the S&P 500, which was created more than 50 years ago and is one of the most widely followed indexes of large-cap American stocks.

Dow Jones Indexes include the well-known Dow Jones Industrial average of 30 blue chip stocks. The brand was created in 1896 by Charles Dow, a company founder.

Dow and S&P create and license indexes that investors and others use to measure the performance of various markets.

Chicago-based CME Group, the world's largest derivatives exchange operator, offers futures and options contracts based on many indexes and pays fees for licensing rights, where it doesn't already own them. CME bought 90 percent of the Dow Jones' namesake indexes business last year.

Earlier this month McGraw-Hill said it would divide itself into a markets data company that includes its Standard & Poor's ratings businesses and an education company for textbook publishing.

The breakup announcement followed public demands starting in July from the Ontario Teacher's Pension Fund and hedge fund Jana Partners LLC for a broad reorganization.

(Reporting by Paritosh Bansal; editing by Carol Bishopric.)

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