The two best-known stock market indexes will be jointly owned under a new venture between the companies that operate the Standard & Poor’s 500 and the Dow Jones industrial average.
S&P owner McGraw-Hill Cos. and Dow Jones Indexes majority owner CME Group Inc. on Friday announced a venture called S&P/Dow Jones Indices. Other S&P and Dow indexes besides the two best-known ones are covered under the deal.
The boards of both companies approved a venture expected to generate revenue of more than $400 million from sources that include licensing agreements with mutual funds and other financial products. Investors use the two companies’ indexes as benchmarks for about $6 trillion in financial assets.
New York-based McGraw-Hill will own 73 percent of the index venture, with Chicago-based CME Group owning 24.4 percent through affiliates. News Corp.’s Dow Jones & Co. will own 2.6 percent.
CME Group is the 90 percent owner of a CME Group/Dow Jones venture that owns Dow Jones Indexes. Dow Jones & Co. sold that stake to CME Group last year, while Dow Jones retained a 10 percent interest.
S&P/Dow Jones Indices is expected to begin operating in the first half of next year, subject to regulatory approval and closing conditions.
The deal had been expected after the Dow Jones-owned Wall Street Journal in late September reported plans to merge the index businesses.
Shares of McGraw-Hill fell 10 cents to $41.95 in morning trading. Shares of CME Group, parent of markets such as the Chicago Mercantile Exchange and Chicago Board of Trade, declined $1.77 to $266.78.
McGraw-Hill said the venture is expected to immediately add to its earnings.
The new venture will become part of McGraw-Hill Markets. That’s a company being formed as a result of McGraw-Hill’s September announcement of plans to split into two public companies, one focused on education and one on financial markets, including the S&P business. That decision followed a yearlong review of McGraw-Hill’s business.
Under the joint venture, all current market indexes will retain their brand names, such as S&P or Dow Jones, and the S&P 500 and Dow Jones industrial average will continue to be separately maintained and licensed.
The S&P 500 tracks the 500 largest U.S. stocks by market value. It is the benchmark that many mutual funds and other financial products use to gauge performance.
Dow’s industrial average is a narrower index, tracking 30 leading U.S. stocks chosen by executives of Dow Jones Indexes. But the Dow is better-known in many respects than the S&P 500 and is used as an indicator by investors around the globe to track stock price movements.
S&P/Dow Jones Indices will be led by Alexander Matturri, executive managing director of S&P Indices. Lou Eccleston, president of McGraw-Hill Financial, will become chairman of the company’s seven-member board, which will include five directors designated by McGraw-Hill, and two by CME Group.