CME Group Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by CME Group Inc. on November 4, 2011. The filing discloses a significant strategic transaction involving the formation of a new joint venture with The McGraw-Hill Companies, Inc. to consolidate index businesses.
Key Financial Metrics
The filing text does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the reporting period. The document focuses exclusively on the structural details of the Contribution Agreement and the resulting joint venture ownership.
Material Changes and Transaction Details
- Joint Venture Formation: CME Group, through its joint venture CME Group Index Services LLC (CGIS), and McGraw-Hill entered into a Contribution Agreement to create a new joint venture.
- Contributions: McGraw-Hill will contribute its S&P index business. CGIS will contribute its Dow Jones index business. Additionally, McGraw-Hill will purchase Credit Market Analysis Ltd. from CME Group, with the consideration contributed to the new joint venture.
- Ownership Structure: Upon consummation, McGraw-Hill will own a 73% interest, while CGIS and CME Group will collectively own a 27% interest.
- Regulatory Status: The transaction is subject to required regulatory approvals.
Guidance, Outlook, and Governance
- Management: The joint venture will be managed by a board of directors with designees from McGraw-Hill and CME Group/CGIS proportional to ownership. Board decisions require a majority vote, with CME Group/CGIS retaining protective minority approval rights.
- Restrictions: McGraw-Hill is restricted from disposing of its interest until December 31, 2017, except for specific spin-off transactions. Thereafter, sales are subject to rights of first offer/refusal in favor of CME Group/CGIS.
- Exit Rights: CME Group/CGIS holds a put option to sell its interest to McGraw-Hill after 2017 based on fair market value. McGraw-Hill has limited rights to buy out CME Group/CGIS.
- Non-Competition: Both parties agree not to compete in the index business while owning at least 5% of the joint venture, with exceptions for existing McGraw-Hill businesses like Platts.
- Licensing: A new license agreement will grant CME Group rights to use S&P stock indexes for derivatives. The S&P 500 license will be exclusive for futures and options until one year prior to termination. Fees are based on a percentage of CME Group's equity index complex profits.
Investor Verification Checklist
- Confirm receipt of all required regulatory approvals for the joint venture consummation.
- Review the specific terms of the new license agreement regarding S&P index usage and fee structures.
- Monitor the timeline for the closing of the transaction and the formal establishment of the LLC Agreement.
- Verify the valuation methodology for the put option rights exercisable by CME Group after 2017.