* MSCI put Maryland unit up for sale in October
* ISS president: no layoffs planned
(Adds comments by ISS president)
By Neha Dimri and Ross Kerber
March 18 Stock market index provider MSCI Inc
said it would sell influential governance unit
Institutional Shareholder Services (ISS) to private equity firm
Vestar Capital Partners for $364 million to focus on its risk
investment products and services business.
By putting the unit under private ownership the deal could
resolve some awkward situations for MSCI and for ISS. Both have
faced criticism from companies and trade groups like the U.S.
Chamber of Commerce on areas including the methodologies used by
ISS in recommending votes on the election of corporate
directors, executive pay and other touchy matters.
MSCI said in October that it was exploring the sale of ISS,
which had been through a series of owners before MSCI bought it
No layoffs will result from the deal among the roughly 700
employees of Rockville, Maryland-based ISS, said unit president
Gary Retelny in a telephone interview.
He will remain at the company with other executives. The
deal is expected to close within three months, MSCI said, and
will help ISS conduct business, Retelny said.
"The new prospective owners understand what the business of
ISS is, what issues matter, and that ISS always needs to provide
independent, unbiased advice. That is sacrosanct," he said.
MSCI's shares have gained 12 percent since October. They
closed almost flat at $45.63 on the New York Stock Exchange on
"This sale would not only remove potential conflicts of
interest within MSCI's business model, but the MSCI stock could
benefit as we believe ISS was not being properly valued,"
Macquarie Capital analyst Kevin McVeigh said.
Morningstar Inc analyst Peter Wahlstrom said he does not
foresee any major strategic shift from the new owners.
"It is a pretty established business with good cash flow and
if a private equity sponsor has purchased that business, there
are certain attributes they like," he said.
ISS has more than 1,700 clients for its corporate governance
services - well ahead of competitors such as Glass, Lewis & Co -
and accounted for about 12 percent of MSCI's operating revenue
of $1.03 billion in 2013.
Recommendations from ISS can have a noticeable impact on how
shareholders vote. On average, shareholder support was 30
percent lower at Russell 3000 companies that received an
"against" recommendation by ISS on their executive pay, for
instance, according to a study by compensation consulting firm
Analysts said MSCI managed to obtain a good price for the
"The company is getting three times revenue for the sale of
that business and is left with a more higher margin and more
streamlined MSCI," said Wahlstrom.
Joel Jeffrey of Keefe, Bruyette & Woods said the sale price
was at the high end of his estimated range. Jeffrey has a
"market perform" rating on MSCI stock.
Vestar was part of a group that acquired Del Monte Foods in
a $5.3 billion deal in 2011. The group included KKR & Co LP
and Centerview Capital.
Morgan Stanley served as financial adviser to MSCI and Davis
Polk & Wardwell LLP was the legal adviser.
(Reporting by Neha Dimri in Bangalore and Ross Kerber in
Boston; editing by Sriraj Kalluvila, Maju Samuel and Matthew