- A joint venture linking the Dow Jones Industrial Average and the S&P 500 is under discussion
- This would unite two of the world's most-watched market measures
- People familiar with the discussions caution that they could change or fall apart
Talks are taking place that could see the Dow Jones Industrial Average come under the same umbrella as the S&P 500 index, uniting two of the world's most-watched market measures in a joint venture, according to three people familiar with the discussions.
Spokespeople for McGraw-Hill, owner of Standard & Poor's, and CME, the Chicago derivatives exchange owner which bought 90 per cent of Dow Jones Indexes in 2010, declined to comment. Dow Jones, the News Corp subsidiary that owns 10 per cent of Dow Jones Indexes, and Dow Jones Indexes itself also declined to comment.
People familiar with the discussions, first reported by News Corp's Wall Street Journal, cautioned that they had been going on for about a year and could change or fall apart.
However, they added that the plan under discussion would see McGraw-Hill own almost 75 per cent of the joint venture, which would be housed in McGraw-Hill Markets, the financial services company that is to be formed when the media conglomerate spins off its education business next year. CME would have almost 25 per cent of the joint venture, with Dow Jones retaining a small stake.
The combination of two such prominent indices could attract the attention of regulators, although one person briefed on the negotiations said that the parties did not expect this to be a hurdle, as the S&P 500 is seen as a more institutional product than the Dow, which is more closely followed by retail investors.
In February 2010, News Corp sold 90 per cent of Dow Jones Indexes to CME for $613m, helping to recoup part of the cost of buying the publisher of the Wall Street Journal in 2007. The managing editor of the Wall Street Journal still chooses the Dow's components.
Beyond its flagship US index, created in 1896 by Charles Dow, Dow Jones Indexes publishes about 130,000 other indices.
As well as the S&P 500, S&P Indices cover more than 10,000 securities in more than 80 countries, and puts out the Case-Shiller Home Price Index, the main indicator for US housing markets.
The index industry, which has been known for producing steady, annuity-like revenues, has seen growth in recent years from the rise of emerging markets and growing investor interest in commodities and other asset classes as alternatives to equities and bonds. Some investors have also chosen to track indices passively rather than pay bigger fees to active portfolio managers.
At the time of the 2010 Dow Jones auction, investment bankers had expected interest from rivals such as MSCI or Morningstar or potential new entrants such as Thomson Reuters or Bloomberg. It was not clear on Thursday whether another company could look to break up the talks between CME and McGraw-Hill.
CME said the Dow Jones Indexes acquisition would help it diversify its revenues, although they accounted for just 2 per cent of group sales last year.