MSCI Inc. agreed to acquire RiskMetrics Group Inc. in a cash-and-stock transaction valued at $1.55 billion, according to a joint statement by the companies issued March 1.
The deal should net index provider MSCI $50 million in cost savings by next year, including $30 million in overlapping positions across a range of functions from RiskMetrics, a leading provider of corporate governance and risk management advisory services, Henry A. Fernandez, MSCI chairman, CEO and president, said in an interview. The other $20 million in savings is expected from overlapping market data, office location and administrative expenses.
M. Ethan Berman, RiskMetrics chairman and CEO, will become an advisory director of the combined company, a non-management role, Mr. Fernandez said. Mr. Berman will advise on the integration of the two companies and is expected to leave when that work is completed.
Mr. Fernandez will remain as MSCI chairman, CEO and president.
Decisions on inviting other RiskMetrics senior management to stay haven't been made, Mr. Fernandez said. Professional staff reduction from the consolidation is expected to be small; the larger part of the reduction is expected to come from administrative support staff.
“We have quantified (the reduction) precisely,” Mr. Fernandez said. “We are confident we can create synergies across the two (companies).”
The companies will be consolidated under the MSCI corporate name, Mr. Fernandez said. But MSCI will adopt some of RiskMetrics' well-known brands, joining those of MSCI in indexing and Barra, which is MSCI's portfolio risk analytics division, he added.
The combination of the companies in part builds on MSCI's effort to take advantage of what is becoming increasing critical — the need to understand, measure and manage portfolio risk, Mr. Fernandez said.
MSCI will consolidate RiskMetrics' businesses in four key areas, he said.
MSCI plans to combine its Barra portfolio risk management analytics and RiskMetrics' risk management analysis services under the RiskMetrics brand name, Mr. Fernandez said.
In addition, MSCI plans to operate RiskMetrics' corporate governance research and proxy-voting advisory services under the ISS, or Institutional Shareholders Services, brand name that RiskMetrics used for such business operations.
MSCI plans to combine RiskMetrics' environmental, social and governance data and analytics with MSCI's equity research business.
Also, MSCI plans to use the acquisition to expand its equity index business, creating global indexes and other products in the sustainability area tied to RiskMetrics corporate governance and ESG research, Mr. Fernandez said.
MSCI has no indexes on corporate governance or ESG factors now “because we want to have total control on the screens” used to determine the component companies, Mr. Fernandez said.
MSCI will now have that screening capability with the acquisition, Mr. Fernandez said. He specifically cited RiskMetrics' corporate governance research and ESG research from RiskMetrics' acquisitions of KLD Research & Analytics Inc. last November and Innovest Strategic Value Advisors Inc. in February 2009.