MetLife to Replace Seagram in S&P 500 Index

Standard & Poor's has announced that MetLife (MET) will replace Seagram (VO) in the S&P 500 when its acquisition by Europe's Vivendi (V) is a done deal.

Companies that are added to the S&P 500 often see their stock move higher because index managers need to buy. The upward pressure on MetLife could be especially heavy, according to Merrill Lynch's derivatives team, because while MetLife has about 764 million shares outstanding, its float -- the shares that publicly trade -- comes to only about 252 million shares.

"MetLife is 60% held by insiders," notes Merrill equity derivative strategist Diane Garnick. She estimates that indexers will have to buy just over 25 times average trading volume.

Although S&P 500 funds will be selling their Seagram, the company's stock may not fall under any undue pressure. The Seagram acquisition will increase the total market capitalization of Vivendi, forcing European index managers to buy more shares. As a result, "the trade flow for Seagram will net out to almost nothing," says Garnick.

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