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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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September 24, 2007 12:01 AM ET
Bloomberg
ATTENTION, SHOPPERS Xinhua Finance chief executive Fredy Bush
Industry observers say the top contender may be Institutional Shareholder Services, the industry heavyweight, and for good reason. The company will soon have plenty of cash now that its parent, RiskMetrics, announced plans last week to go public. Of course, any marriage of the No. 1 and No. 2 in the influential proxy world would require regulatory approval, but based on a recent, surprising government report pronouncing ISS to be for the most part free of conflicts, that may not be so hard. In a Sept. 19 filing with the Securities and Exchange Commission, RiskMetrics said it was hoping to raise up to $200 million in an initial public offering of common stock on an unspecified date later this year. The New York firm, which also provides risk management services to institutional investors, has been growing quickly: Last year it bought ISS, the No. 1 proxy adviser, for roughly $550 million; earlier this year it snapped up the Center for Research & Analysis, a forensic accounting firm, for an undisclosed amount. Meanwhile, talk continues that RiskMetrics may be jonesing for Glass Lewis, which has suffered key staff defections and negative media coverage since being acquired by Shanghai media company Xinhua Finance earlier this year. According to a recent newsletter from Stephen Davis, a corporate governance consultant, Xinhua CEO Fredy Bush has hired a merchant bank to sell Glass Lewis, and the “front-running contender so far” is RiskMetrics. Mr. Davis, who was not available for comment, did not specify a price, but he did say that an unnamed private equity firm had asked Xinhua to sell Glass for half of what it originally paid for it, roughly $22.5 million, but has been rebuffed so far. Spokeswomen for both RiskMetrics and Xinhua declined comment. Talk of an IPO for RiskMetrics began almost immediately after it bought ISS last November. At the time, however, observers wondered if the heightened transparency of being a public company would shed unwanted light on ISS, which has long been criticized for selling governance consulting services to the same companies it evaluates for institutional shareholders like pension funds and mutual funds. ISS’s clients also worried that the pressure to meet earnings as a public company would increase the likelihood of more conflicts. ISS (and RiskMetrics), however, have since done quite a bit of damage control. The company now discloses the potential conflicts of interest on its website and says that it advises clients of relevant business practices in all of its proxy vote analyses; the company also maintains separate staff located in separate buildings for its two businesses. Indeed, a recent report by the Government Accountability Office, the investigative arm of Congress, found ISS nearly conflict free, much to the dismay of its smaller competitors. “Being public brings transparency, but transparency could be a good thing,” said Paul Rose, a law professor at Ohio State University who was interviewed for the GAO report. “ISS has already been very careful about making things clear for its clients. Just being under the SEC’s watch, and scrutinized more thoroughly, will help its reputation.” RiskMetrics, which was spun out of J.P. Morgan in 1998, has not disclosed the number of shares it plans to sell, the expected price, or the stock symbol. The company said it would use its IPO proceeds to repay debt and for general corporate purposes. According to the filing, RiskMetrics earned $745,000 on $110.5 million in sales (after acquisition expenses) for the six months ended June 30. In the opposite corner is Glass Lewis, ISS’s biggest competitor, which has fallen on hard times. Ironically, Standard & Poor’s Ratings Services recently dropped its long-term corporate credit rating on Glass parent Xinhua Finance to B from B+, in large part over concerns about its corporate governance practices. Xinhua has also been battered by the media since May, when Glass Lewis’ chief researcher and highly respected former SEC chief accountant, Lynn Turner, abruptly resigned, as did the firm’s research editor, Jonathan Weil. In his newsletter, Mr. Davis noted that while there is one other unidentified company also bidding for Glass Lewis, as well as the private equity firm, RiskMetrics “has the cash and the motive to take over GL,” adding that the combined firm would dominate more than 80% of the market, “gaining potential new pricing power and clout.” Any merger might draw heavy scrutiny from regulators, said Mr. Rose. After all, ISS already has 1,700 clients representing $25.5 trillion in investment assets, more than the next four advisory shops combined (Glass Lewis, Proxy Governance, Egan-Jones and Marco Consulting). Add Glass Lewis’ 300 clients, representing $15 trillion in assets, and ISS would pretty much own the $150 million market (some predict a $500 million market within a few years). “They might not get approval for that, just based on the way the industry is structured right now” said Mr. Rose. “After ISS, there’s a huge drop off [in size] to Glass, then there’s another big drop-off. It would be really tough for smaller firms or new firms to compete with that combination.” The GAO report offers ISS some hope. While it acknowledged ISS’s overwhelming size, the agency found that the barrier to entry for competitors was low: Firms wishing to enter the market have access to the same public information as ISS, the report stated. FW
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