Leading shareholders at MSCI are urging the company to consider breaking itself up and putting its famous stock market indices business on the auction block.
The extent of a rift between the company’s management and ValueAct, an activist hedge fund which has taken an 8.3 per cent stake, goes beyond the question of whether ValueAct should be given a board seat, according to people familiar with the situation.
MSCI rejected ValueAct’s request for boardroom representation because the fund is encouraging the company to split its indices operations from more recently acquired portfolio management software businesses.
People close to the discussions say ValueAct believes the indices business could be attractive to a strategic buyer, since stock exchanges are aggressively pushing into indexing.
Earlier this week, Nasdaq paid $225m for Dorsey Wright, a US index provider and analytics group, and last year the London Stock Exchange outbid MSCI for the Russell family of stock indices in a $2.7bn deal.
There is more than $9tn benchmarked against MSCI indices globally, the company says.
At least one other major shareholder, a London-based value investor called Independent Franchise Partners, shares ValueAct’s belief that the company would be better broken up, according to people familiar with its thinking. Independent Franchise has an 8.6 per cent stake in MSCI.
A third leading shareholder is backing ValueAct’s push for board representation, although it has not yet taken a view on whether the company should be broken up.
“ValueAct have a good track record of being constructive board members,” the shareholder said. “At MSCI, there are questions on whether a longstanding management is wedded to a strategy that doesn’t make sense, and ValueAct are very thoughtful about the questions they ask.”
MSCI has already started building up its defences against the break-up calls, hiring public relations specialists and strengthening its team of bankers to include those expert in responding to activist funds.
Jeff Ubben, founder of ValueAct, went public earlier this week with a letter criticising MSCI management for failing to properly consider putting a ValueAct representative on the board.
In it, he questioned the company’s strategy of tightly integrating portfolio analytics and risk analytics software businesses into the core indexing operations, but did not go further in setting out proposals for structural reform.
MSCI, led by chairman and chief executive Henry Fernandez, has been promising to increase investment in the software businesses, and to return $1bn in capital to shareholders by the end of 2016.