What is the main purpose of the transaction announced by CME Group?

The primary purpose of the transaction is to combine CME Group's Dow Jones index business with McGraw-Hill's S&P index business into a new, jointly owned entity. This aims to create a stronger, more comprehensive index offering and leverage the strengths of both companies in the index space.

What will be CME Group's ownership stake in the new joint venture?

CME Group, along with its affiliate CME Group Index Services LLC (CGIS), will collectively own a 27% stake in the newly formed joint venture. The McGraw-Hill Companies will hold the majority ownership of 73%.

What are the implications of the new license agreement for CME Group?

The new license agreement grants CME Group the right to use certain S&P stock indexes as the basis for its derivative contracts (futures, options, swaps). Notably, CME Group will have exclusive rights for the S&P 500® Index in futures and options on futures, which is a key asset for its derivatives business. In return, CME Group will pay a quarterly fee based on its equity index complex profits.

Are there any restrictions on the parties' ability to sell their joint venture interests?

Yes, there are significant restrictions. For example, McGraw-Hill cannot dispose of its interests until December 31, 2017, except through specific spin-off transactions. After that, sales are subject to rights of first offer and refusal for CME Group/CGIS. Both parties also have drag-along and tag-along rights, and there are limitations on McGraw-Hill's ability to buy out CME Group's stake, and vice-versa, with put options for CME Group after 2017.

CME 8-K SEC Disclosure

Summary

CME Group Inc. (CME) announced a significant strategic transaction on November 4, 2011, through a Form 8-K filing. The company, along with The McGraw-Hill Companies, Inc., and CME Group Index Services LLC (a CME joint venture), entered into a Contribution Agreement to form a new joint venture focused on index businesses. This new entity will combine McGraw-Hill's S&P index business and CME's Dow Jones index business. Under the agreement, CME Group will also sell its Credit Market Analysis Ltd. to McGraw-Hill, with the proceeds contributed to the joint venture. Following these contributions, McGraw-Hill will hold a 73% stake, while CME Group and its affiliate CGIS will collectively own the remaining 27%. This move is expected to streamline index operations and create a more robust index offering, with implications for future revenue streams and strategic partnerships for CME Group.

Key Highlights

1CME Group, McGraw-Hill, and CME Group Index Services LLC formed a new joint venture combining their respective index businesses (Dow Jones and S&P).
2McGraw-Hill will be the majority owner (73%) of the new joint venture, with CME Group and CGIS holding a combined 27% stake.
3CME Group will contribute its Dow Jones index business and sell Credit Market Analysis Ltd. to McGraw-Hill, with the sale proceeds going to the joint venture.
4The joint venture will be managed by a board of directors reflecting ownership proportions, with CME Group/CGIS having customary minority protective rights.
5CME Group secured a new license agreement to use certain S&P stock indexes for futures, options, and swaps, with exclusive rights for the S&P 500® Index in futures and options.
6CME Group will pay a quarterly fee based on a percentage of its equity index complex profits for the S&P index license.
7Non-compete agreements are in place for both parties in the index business, subject to certain exceptions.

CME GROUP INC. 8-K Report, Corporate Update (Nov 7, 2011)

Summary

Key Highlights

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