Two of the best-known stock market gauges in the world — the Dow Jones industrial average and the Standard Poor’s 500 — may share the same home under a deal being discussed.
McGraw-Hill, the owner of Standard Poor’s, is in advanced talks with the CME Group Inc., which owns Dow Jones Indexes, about forming a joint venture, according to people briefed on the matter who were not authorized to speak publicly.
Under the current terms of the talks, McGraw-Hill would own about 75 percent of the joint venture, while CME would own about 25 percent, one of these people said. Dow Jones, which owns about 10 percent of the Dow Jones index business and must approve any transaction, would receive a minimal stake in the new entity.
A deal could be reached within a few weeks, though the discussions may still fall apart, this person cautioned.
Spokeswomen for McGraw-Hill and CME declined to comment. A representative for Dow Jones, which is owned by the News Corporation, was not immediately available for comment.
If consummated, such a joint venture would be the first time the S.P. 500 and the Dow lived under one roof. Since their creation — the Dow in 1896, the S.P. 500 in 1957 — both market measures have become permanent fixtures in the American economy and the most popular representations of the ups and downs of the stock market.
For many of America’s biggest corporations, there are few more potent signs of dominance than being included in either index, and falling out of either imparts something of a stigma.
Those two benchmarks, however, are just the tip of a huge business. The companies own hundreds of thousands of indexes that track stocks, commodities and more exotic investments. Dow Jones Indexes alone has more than 130,000 indexes. Licensing these indexes for financial products can be a lucrative business.
The joint venture deal has been taking shape as McGraw-Hill has sought to revamp its operations to bolster its stock price. Earlier this month, the publisher said it would split into two publicly traded businesses by spinning off its education unit. The remaining operations — including the Standard Poor’s index unit and its credit ratings arm — would live on as McGraw-Hill Markets.
It is that company that is expected to house the expanded stock indexes business, the person briefed on the matter said.
By combining the two operations, the three companies are hoping to create a robust leader in market index products, including derivatives of their flagship products. It would also harness the growth in exchange-traded funds, many of which are built on permutations of major indexes.
It is unclear how the two activist investors pushing for greater changes at McGraw-Hill — the hedge fund Jana Partners and Canada’s Ontario Teachers Pension Plan — view the potential joint venture. This summer, Jana and Ontario Teachers had called for a bigger breakup of McGraw-Hill.
But the company has resisted that push. While it agreed that its education unit would be better off as a separate business — it began preparing for that in March — McGraw-Hill has argued that keeping the rest of its businesses together, including its indexes operation, would make for a stronger company.
Representatives for Jana and Ontario Teachers were not immediately available for comment.
Shares in McGraw-Hill rose about 1.4 percent in after-hours trading after The Wall Street Journal reported the talks. They closed on Thursday at $42.31.
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