Report: CME considering $700 mil bid for Dow indexes
CME Group Inc., the world's largest futures market, is in talks to buy the News Corp. stock-index business that owns the Dow Jones Industrial Average for as much as $700 million, two people familiar with the matter said.
A deal may be announced as early as tomorrow, said one of the people, who asked not to be identified because the talks are private. The price dropped from $1 billion after News Corp. sold Stoxx Ltd., owner of Europe's Dow Jones Stoxx 600 Index, to Deutsche Boerse AG of Frankfurt and SIX Group of Zurich in November, according to one of the people.
CME Group, based in Chicago, pays News Corp. of New York to license Dow Jones indexes so it can offer futures linked to them. Losing the ability to offer contracts on measures such as the Dow Jones Industrial Average would hurt revenue at CME Group, which suffered after Intercontinental Exchange Inc. won rights to indexes owned by Russell Investments in 2008.
"It's like you have the patent," said Richard Repetto, an analyst with Sandler O'Neill & Partners LP in New York who has a "buy" rating on CME Group. "If you own the index, then you have the license to the trading," he said. "If you look at stocks, anybody can trade IBM -- there's no licensing of IBM stock which is just a piece of paper -- but there is to indexes because they're created by someone."
CME Group spokesman Michael Shore declined to comment, as did Sybille Reitz of Dow Jones Indexes.
Butter & Egg BoardThe Dow Jones Industrial Average, a 30-stock benchmark for U.S. stocks, was created in 1896 by Dow Jones co-founder Charles Dow. Two years later, the precursor to the Chicago Mercantile Exchange, the Chicago Butter Egg Board, opened its doors more than 700 miles (1,127 kilometers) to the west. CME Group was formed in 2007 when the Merc bought the Chicago Board of Trade, creating the largest futures exchange.News Corp. Chairman and Chief Executive Officer Rupert Murdoch bought Dow Jones Co., which also includes the Wall Street Journal and Dow Jones Newswires, for $5.2 billion in 2007. The discussions between CME Group and News Corp. were first reported in the Wall Street Journal on Jan. 29.CME Group fell 67 cents to $286.15 as of 9:36 a.m. in Nasdaq Stock Market trading while News Corp. gained 6 cents to $12.67.Equity futures are the second-largest product by trading volume after interest rates at CME Group. The company also handles futures on the Standard Poor's 500 Index, the benchmark for U.S. equities.December 2014CME Group, through its Chicago Board of Trade unit, paid $74 million for the exclusive use of many Dow Jones indexes in 2007, according to company filings. The agreement is good until December 2014 with an option to renew for five years. CME Group pays Dow Jones every time a contract based on one of its indexes is traded and agreed to a minimum annual fee and an upfront payment in 2007, according to the filings.Those payments to News Corp. are in the range of $30 million to $35 million a year, said one of the people.News Corp. wants cash for the index business, one of the people said. The company wrote down the value of the unit's goodwill and intangible assets by $2.8 billion in 2008.CME Group had $204.1 million in cash and equivalents on Sept. 30, according to the company's most-recent quarterly filing with the Securities and Exchange Commission. The deal under consideration with News Corp. doesn't include a large up- front payment and is structured over many years, one of the people said.Diversify RevenueThe move by CME Group may also be part of a plan to diversify the company's sources of revenue, the people said. The exchange owner, which controls 98 percent of the U.S. futures market, bought Credit Market Analysis Ltd., a pricing service for credit-default swaps, in 2008 to expand in over-the-counter derivatives.News Corp. and its subsidiaries, including Dow Jones Newswires, compete with closely held Bloomberg LP in providing financial news and information.Dow Jones runs more than 130,000 equity indexes. Founded in 1882, it began by delivering handwritten bulletins of stock and bond trading in New York. An afternoon newsletter started the next year and went on to become the Wall Street Journal.