Morningstar plans $100 million IPO

Fund research company might use proceeds for acquisitions, investments

May 07, 2004|By BLOOMBERG NEWS

CHICAGO - Morningstar Inc., whose U.S. mutual fund research is used by more than 3 million investors, plans to raise as much as $100 million in an initial public offering.

Softbank Finance Corp., Morningstar's second-biggest shareholder with a 20 percent stake, might sell stock in the transaction. Morningstar might use the proceeds to make acquisitions and invest in joint ventures, according to a filing with the Securities and Exchange Commission.

Morningstar, which tracks more than 15,700 U.S. funds, has been unprofitable for four of the past five years, the SEC filing said. Last year, the 20-year-old company, led by founder Joe Mansueto, reported a net loss of $11.9 million after compensation-related expenses of $29 million. Revenue rose 27 percent last year to $139.5 million.

"It looks like some of the company's biggest investors are looking to cash out in the IPO," said Geoff Bobroff, a fund industry consultant in East Greenwich, R.I.

Morningstar is controlled by Mansueto, 47, who owns more than 78 percent, the regulatory filing said. Managing Director Don Phillips, 42, who joined the company in 1986, is listed as owning 4.3 percent, and Managing Director Tim Armour, 55, has 1.8 percent.

The amount owned by executives includes options that might be exercised in the next two months. The filing said the executives plan to have the same number of shares after the offering as they did before it. Margaret Cohen, a spokeswoman for Morningstar, declined to comment on the filing.

Softbank Finance is a unit of Softbank Corp., Japan's second-largest high-speed Internet provider.

Morningstar established Morningstar Japan, its first international business, in partnership with Tokyo-based Softbank in 1998. The companies also invest in businesses that operate in Korea and elsewhere in Asia. Softbank bought its share of Morningstar in 1999 for $91 million, the filing said.

Morningstar won't "receive any of the proceeds from the sale of shares" by Softbank, the filing said.

The firm provides a variety of investment-related services for individual investors, financial advisers and institutions, including fund companies. It is best known for rating mutual funds on a five-star scale.

The company might use proceeds from the IPO to expand its stock and hedge fund coverage. The company increased its equity analyst staff to 48 from 24 in April 2003 and plans to hire 20 more analysts by the end of the year. That would enable Morningstar to cover 1,350 companies, up from 700.

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