Duff & Phelps, Fitch Say They Plan to Merge

Fitch IBCA and Duff & Phelps Credit Rating Co. on Tuesday announced plans to merge, refueling competition in the credit rating business by pitting the new company against heavyweight foes Moody’s Investors Service and Standard & Poor’s.

The company, which would have combined sales of $260 million and 1,100 staff, aims to broaden ratings coverage and research distribution, escalating the drive to contend seriously with the two ratings giants.

Fitch, a unit of French holding company Fimalac, offered $100 a share for Duff & Phelps, or 27% more than the company’s share price Monday of $79.

Chicago-based Duff & Phelps shares rose $18.02 to close at $97.02 on the New York Stock Exchange amid a broad market sell-off. Earlier, it reached a 52-week high of $98.63.

Companies, governments and agencies pay for credit ratings, and those ratings determine their cost of borrowing. Issuers often select two ratings, and a vast majority have turned to market leaders S&P; and Moody’s.

“We’re interested in expanding our coverage for investors so we’re more complete as contrasted with S&P; and Moody’s,” Stephen Joynt, Fitch IBCA president and chief operating officer, told Reuters. “That’s the position we want to put ourselves in so that we can be freely chosen as one of two ratings.”

The merged company, as yet unnamed, will be a more serious competitor than either company alone, market analysts agreed.

Fimalac said Duff & Phelps would boost Fitch’s corporate and insurance sector coverage. Fitch’s strengths include global banking, European ratings and U.S. public finance. Both companies have a strong presence in structured finance ratings and maintain international networks.

Spurred by competitive pressures, the merged company would boost spending on new technology to develop Internet services.

Still, Moody’s and S&P; face little major immediate threat from a Fitch/Duff & Phelps merger, some market analysts said.

“It makes them a more considerable alternative now, but it would take an aggressive marketing posture on the part even of the combined firm to unseat Moody’s and S&P; as the industry standards,” said Stewart Morel, executive director and co-head of high-grade research at Warburg Dillon Read.

“They still need to make issuers understand why they need another rating agency or if they need an alternative to the other two,” he added. “My experience so far is that they haven’t been able to prove it separately.”