The McGraw-Hill Companies (NYSE: MHP), one of the world's foremost financial information companies, and CME Group (NASDAQ: CME), the world's leading and most diverse derivatives marketplace, announced today the launch of S&P Dow Jones Indices - the world's largest provider of financial market indices.
S&P Dow Jones Indices calculates over 830,000 indices, publishes benchmarks that provide the basis for 575 ETFs globally with $387 billion in assets invested, and serves as the DNA for $1.5 trillion of the world's indexed assets.
With a long track record of providing investors with innovative, index-based solutions, original research and timely data, S&P Dow Jones Indices is the pioneer and home to the iconic Dow Jones Industrial Average and S&P 500, as well as home to some of the most widely followed and trusted indices such as the S&P/Case-Shiller Home Price Indices, S&P GSCI and the Dow Jones-UBS Commodity Index SM. According to the Futures Industry Association, 3 of the top 5 Equity Index Futures and Options contracts traded and/or cleared between January and April 2012 were based on S&P Dow Jones Indices benchmarks.
Combining S&P Indices' leading position in equity, commodity, real-estate, and strategy indices with Dow Jones Indexes' recognized strengths in equity, commodity, emerging market, target date, and dividend indices provides an opportunity to offer a complete and growing index family in more assets classes, for more investors throughout the world.
"S&P Dow Jones Indices represents the next generation of investing and a great partnership between the future McGraw-Hill Financial and the CME Group," says Harold McGraw III, chairman, president and chief executive officer of McGraw-Hill. "What we have created today is an exceptional global leader that connects investors and financial professionals with the index-based investment ideas and solutions they need to make informed decisions. More assets are directly invested in products based upon our indices than any other index provider in the world, and that is the byproduct of our extraordinary leadership, adaptive platforms and distinctive product offerings."
Terry Duffy, CME Group executive chairman and president, said, "CME Group's diverse, globally relevant products are a key differentiator for our company, our customers and our investors. Building on our long-term partnership with McGraw-Hill, this new JV will create new risk management index products and trading opportunities for both our institutional and retail customers around the world. In addition, this transaction diversifies CME Group's revenue base and creates value for our shareholders."
Phupinder Gill, CME Group chief executive officer, said, "CME Group's global growth strategy continues to focus on developing regionally relevant products, leading clearing solutions and world-class technology - as well as expanding our index services footprint. The newly launched JV creates opportunities for continued innovation to meet the needs of our customers in existing and emerging markets, including through CME Group's long-term exclusive license to use the S&P 500® for futures and options on futures products going forward."
Alexander Matturri, executive managing director of S&P Indices, has been named chief executive officer of S&P Dow Jones Indices and Lou Eccleston, president of S&P Capital IQ, will chair the company's seven-member Board, which will be comprised of five directors designated by McGraw-Hill and two by CME Group which include: Robert Shakotko, managing director, S&P Dow Jones Indices; Charles Teschner, executive vice president, global strategy & corporate development, McGraw-Hill; Elizabeth O'Melia, senior vice president, treasury operations, McGraw-Hill; John Pietrowicz, senior managing director, business development and corporate finance, CME Group; and Scot Warren, senior managing director, equity index products and index services, CME Group.
Under the terms of the joint venture, which was approved by the Boards of both companies, McGraw-Hill contributed its S&P Indices business and the CME Group /Dow Jones joint venture contributed the Dow Jones Indexes business to create S&P Dow Jones Indices. Actual 2011 revenue for S&P Dow Jones Indices was $421 million.
McGraw-Hill owns 73 percent of S&P Dow Jones Indices, CME Group owns 24.4 percent through its affiliates, and Dow Jones & Company, Inc. indirectly owns 2.6 percent. The new company will be part of the new McGraw-Hill Financial Company, following the separation of The McGraw-Hill Companies into two public companies.
As part of the new joint venture, S&P Dow Jones Indices has entered into a new license agreement whereby CME Group will pay S&P Dow Jones Indices a share of the profits of CME Group's equity index product complex, which includes CME Group revenue from the listing, trading and clearing of equity index-based futures, swaps and options on futures and swaps. In addition, the new license agreement expands the products covered under the license to include swaps and extends the duration of CME Group's existing exclusive rights to the E-mini and other S&P-indexed futures.
"Through our independent and objective viewpoints and expanding relationships with our partners and clients, S&P Dow Jones Indices will play a crucial role in the continuous development and growth of the world's financial markets," says Alexander Matturri, chief executive officer of S&P Dow Jones Indices. "The ideas and solutions that we generate will foster liquidity and confidence in the capital markets and serve as a catalyst for the investment community, enhancing our clients' ability to make better and clearer decisions for the long-term benefit of their constituents and the market at large."
As previously announced, the transaction is immediately accretive to McGraw-Hill's earnings, and S&P Dow Jones Indices will drive profit growth by:
- Increasing revenue through international and asset-class expansion, new product development, enhanced market data offerings and increased cross-selling opportunities
- Achieving cost savings and accelerating time to market by leveraging technology, data procurement, other back office functions and McGraw-Hill Financial's infrastructure
- Reducing capital requirements and generating free cash flow for parent companies.