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S&P Tried to Buy Morningstar

Posted By Barry Ritholtz On July 1, 2009 @ 10:30 am In Bailouts,Legal,M&A | Comments Disabled

A Bailout Nation [1] reader reached out to me with the following tale. What makes it so compelling even today was what they thought they could do with it: Turn it into another Pay-for-Play business:

I was at Morningstar as a mutual fund analyst when S&P tried to buy the company circa 1997.

The S&P people insisted to Joe Mansueto (Founder/Chairman) that he was leaving big mounds of money on the table by not charging mutual funds for their ‘star’ ratings.

Joe replied to the S&P bidders that it was an obvious conflict of interest to charge the funds for their own ratings — how would Morningstar maintain its independence?

They called him naive — and stopped the merger talks.

I was a mid-level manager at Morningstar at the time; I heard the above from an exec who was told it by the CEO. I wasn’t in the meetings or anything, but I have no reason to doubt that that’s what went down . . .

I have no first hand knowledge of this, but knowing what I do of the parties involved, and having confidence in this source of info, the anecdote rings rather true to me.

Consider how typical that “Pay for Play” as a model was amongst the Ratings Agencies. To me, it is very consistent with the thought process and attitudes that were pervasive among the rating agencies circa 1990s/early 2000s.

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NOTE: In 2007, Morningstar Research announced [2] that it had acquired Standard & Poor’s fund data business.


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URL to article: http://www.ritholtz.com/blog/2009/07/sp-tried-to-buy-morningstar/

URLs in this post:

[1] Bailout Nation: http://bailoutnation.net/

[2] Morningstar Research announced: http://corporate.morningstar.com/uk/documents/SP/SP_QA.pdf

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