Recently, CME Group Inc. (CME) has announced that a definitive agreement has been reached to attain 90% of the stake in the Dow Jones & Company. This new joint venture will own the Dow Jones Indexes, which includes The Dow Jones Industrial Average (DJI) and approximately 130,000 index properties. The deal is expected to be sealed by the first quarter of 2010, post the regulatory approvals and other customary formalities.
According to the terms of the agreement, Dow Jones will retain the 10% stake and a key role in the management of the DJI, contributing about $675 million. The CME Group will buy the remaining 90% stake for some of its market data services that are valued at $607.5 million. Further, the joint venture will raise approximately $613 million by issuing third-party debt which will be utilized by CME Group to pay its $607.5 million share to Dow Jones.
Other terms of the deal include the allowance of new joint venture to license the Dow Jones name for the financial-index business. However, the ownership of the Dow Jones brand, including trademarked names, will still remain with Dow Jones. CME Group has appointed Barclays Capital, a division of Barclays PLC (BCS), as its financial advisor and Kirkland & Ellis LLP as the legal advisor.
CME Group offers the widest range of global benchmark products across all major asset classes. The company’s renewed commitment with Dow Jones Indexes sets an important milestone in the company’s global strategy of offering innovative and liquid benchmark contracts for its domestic and international customers. Through disciplined sales, product research, business development, marketing and leveraging the existing customer relationship, the company expects to raise the non-U.S. volume and expand its global footprint in the near future.
The joint venture with Dow Jones is expected to strengthen and diversify CME Group’s revenue streams, expand its index and market data offerings and fuel further growth opportunities in the equity index. This will not only enhance the company’s competitive leverage but also add to the shareholders’ value.
On the other hand, Dow Jones, which is owned by Rupert Murdoch’s News Corp., had been mulling over sale or spin-off alternatives after the value of the business plummeted and declines were witnessed in the advertising of the newspaper industry. Hence, the joint venture is expected to give some respite to the Dow Jones business as well.
On Friday, the shares of CME Group traded at $291.07, up 2.1%, on the New York Stock Exchange.
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