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Lone Pine Lowers Its Stake in McGraw-Hill Financial

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Apr. 16 2015, Updated 10:06 a.m. ET

Lone Pine lowers stake in McGraw-Hill Financial

Lone Pine Capital slightly cut its position in McGraw-Hill Financial (MHFI) in the fourth quarter of 2014. The position accounts for 2.75% of the fund’s total fourth quarter portfolio. The fund owns 7,369,142 shares, down from 10,833,547 shares in the previous quarter.

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Overview of McGraw-Hill Financial

McGraw-Hill Financial is a provider of benchmarks, ratings, analytics, data, and research to the global capital, commodities, and commercial markets. Its operations consist of four reportable segments:

  • Standard & Poor’s Ratings is an independent provider of credit ratings, research, and analytics.
  • Standard & Poor’s Capital IQ is a global provider of multi-asset-class data, research, and analytical capabilities.
  • Standard & Poor’s Dow Jones Indices is a global index provider that maintains a wide variety of valuation and index benchmarks.
  • Commodities & Commercial consists of business-to-business companies specializing in commercial and commodities markets.

A March 2, 2015, Wall Street Journal report by Timothy Martin detailed the sale of credit-rating firm DBRS to private-equity firms Carlyle Group LP and Warburg Pincus LLC. It noted that Standard & Poor’s Ratings Services, Moody’s Investors Service (MCO), and Fitch Ratings have a 95% share of the industry.

McGraw-Hill Financial has 1.29% exposure to the iShares Dow Jones US Financial Service ETF (IYG). Peers Moody’s and MSCI (MSCI) make up 0.82% and 0.30% of the fund, respectively. MHFI also has a 0.95% exposure to the Financial Select Sector SPDR Fund (XLF). It also makes up 0.72% of the iShares US Financial ETF (IYF).

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McGraw-Hill Financial’s profits hit by charge from legal settlements

McGraw-Hill Financial’s earnings beat estimates. Profits grew 22% to $264 million, and adjusted diluted earnings per share from continuing operations increased 23% to $0.95. Its fourth quarter 2014 revenue of $1.29 billion was up 7% compared to the same period last year. It saw revenue growth across all its four segments.

The profits excluded the impact of legal settlements resulting in a charge of $1.5 billion in the fourth quarter. In January 2015, Standard & Poor’s Ratings reached settlements with the US Securities and Exchange Commission (or SEC) and the Attorneys General of New York and Massachusetts. The settlement was over the SEC’s investigation into commercial mortgage–backed securities transactions that were rated by S&P Ratings in 2011. The settlements led to a loss of $846 million for $3.71 per share for McGraw-Hill in the fourth quarter.

McGraw-Hill Financial’s 10Q filing noted that during 2014, it divested McGraw-Hill Construction. The filing stated, “We streamlined our infrastructure by reducing our real estate footprint by selling our data facility, initiating the consolidation of our corporate headquarters with our operations in New York City, as well as disposing of our corporate aircraft.”

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