RiskMetrics finds a buyer in MSCI

Mar 01, 2010

Former Morgan Stanley unit picks up proxy advisory firm

Less than eight weeks after putting itself up for sale, RiskMetrics found itself a buyer. After a failed attempt to purchase the Dow Jones’ index arm, MSCI, the investment research firm and former division of Morgan Stanley, announced today that it will acquire RiskMetrics for $1.55 billion. The transaction values RiskMetrics’ stock at $21.75 per share, just shy of a 20 percent premium on Friday’s closing price. When RiskMetrics first put itself on the proverbial selling block in January, many anticipated the company could fetch $1.3 billion which at the time represented a 30 percent premium over the previous day’s closing price.

Granted, the deal is still technically subject to shareholder approval, but RiskMetrics CEO Ethan Berman and several others connected with the firm, whose combined shares represent 54 percent of RiskMetrics’ shares on issue, have already stated they agree to vote in favor of the transaction. The vote is expected to take place in late spring or early summer and Berman will continue in a temporary advisory role.

Berman, in a press release announcing the deal, calls the merger ‘a truly powerful combination’. Indeed, given RiskMetrics’ already large market share, the transaction does raise questions about its competition. ‘I hope the other players will thrive and will not be overwhelmed by the growth of their major competitor,’ says John Wilcox, chairman of the board member at management consultancy firm Sodali. ‘It is very good to have multiple perspectives looking at the voting issues.’

In a conference call this morning, analysts raised questions about the future of ISS. Although citing plans to retain the proxy-advisory arm for cash-flow generation and debt reduction, Henry Fernandez, MSCI’s CEO, classified this division as a ‘non-core’ asset. What ‘non-core’ exactly means, however, is unclear. ‘I certainly hope it does not mean that less attention will be given to the development of ISS,’ says Wilcox. According to Wilcox, the pressure will be on ISS to ramp up its efforts to provide deeper analysis: ‘Standardized governance measures, while they are a very useful starting point, are no longer going to be sufficient for institutional investors making voting decisions.’ A more customized service, he adds, could justify fee increases. 

For MSCI, however, it could be that the less attention paid to ISS the better. MSCI did not receive high marks in the governance ranking system.  In fact, according to MSCI’s Yahoo! Finance profile, ‘MSCI’s Corporate Governance Quotient (CGQ) as of February 1, 2010 is better than 2.3% of S&P 400 companies and 22.7% of diversified financials companies.’ Yet another reason to replace the CGQ.

 

By Katie Feuer