Last week, Standard and Poor’s, a subsidiary of The McGraw-Hill Companies Inc. (MHP: 29.78 0.00 0.00%), announced that it is substituting reinsurance giantACE Ltd. (ACE: 55.02 0.00 0.00%) with health care company Millipore Inc. (MIL: 106.94 0.00 0.00%) in its S&P 500 index.ACE will be placed on the index after the close of markets on July 14 after Millipore gets acquired by the German drug and chemical maker Merck KGaA.
With this announcement, ACE regains its lost place in the S&P 500 index. It was dropped from the index a couple of years ago on having changed its place of incorporation to Zurich, Switzerland from the Bermuda . S&P has certain rules on the place of incorporation of its member companies, which if not complied with gets dropped from the index.
S&P 500 primarily houses U.S. based companies though it has a handful of companies with foreign domicile as well. But any new companies being added to the index are U.S. based. S&P revised its definition of U.S. based companies in May 2010. According to the revision a company will be called a U. S. company if it files annual reports and isn’t considered a foreign entity by the Securities and Exchange Commission (SEC); has more fixed assets and sales in the U.S. than anywhere else; the shares are listed with NYSE Euronext and NASAQ OMX Group Inc in the U.S.; and corporate governance is consistent with American practices.
Meeting all these criteria ACE got approved for the inclusion last month. Also, more than a 100 companies also got similar approval. But these companies were kept as a buffer, only to be added on a need basis (when a certain company would get dropped due to mergers or any other corporate events).
ACE shares rose 4.9%, to $54.80 within minutes of the S&P announcement in the after-market trading. Normally, with the shares of the company being added to the index experience such a movement as the investors put their money in the S&P 500 stocks to track the index. S&P 500 is one of the largest and most successful and widely followed funds in the world.
The S&P 500 index includes companies on the basis of their free float capital (free-float is the proportion of an issuers share capital that is available for purchase in the equity markets by investors). The index is considered as bellwether for the U.S. economy. In order to keep intact its comparability across time, the index makes changes to its member companies to take in to account different corporate events such as stock splits, shares issuance, dividends and mergers or acquisitions.| Analysts' Targets | |
| Citigroup | $64 |
| Buy | |
| Wednesday, April 28, 2010 | |
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