The Dun & Bradstreet Corp.
(
DNB
) recently announced that operations at its Chinese subsidiary,
Shanghai Roadway D&B Marketing Services Co. Ltd have been
temporarily suspended, following an investigation into its alleged
violation of U.S. and Chinese laws.
The subsidiary has been blamed for breaching Chinese consumer
data privacy laws. The company is also inquiring into whether the
employees of this subsidiary may have violated the Foreign Corrupt
Practices Act (
FCPA
) as well as the anti-bribery law. The matter has been referred to
the U.S. Department of Justice (DOJ) and the Securities and
Exchange Commission (SEC) for further investigation.
Shanghai Roadway D&B Marketing Services Co. Ltd was formed
after D&B acquired 90.0% stake in Roadway International Ltd and
amalgamated D&B Huaxia's sales and marketing business into the
Roadways unit in 2009. D&B Huaxia was formed after D&B
acquired a majority stake in Huaxia International Credit Consulting
Co Ltd in 2007.
Shanghai Roadway D&B's strong performance over the last
couple of years consolidated D&B's position in China and also
helped D&B to continue its expansionary policy through
acquisitions. In 2011, the company acquired substantially all the
assets of MicoMarketing, a direct marketing services provider in
China for approximately $14.0 million.
These acquisitions drove strong growth in China and subsequently
in the Asia-Pacific. In 2011, the Asia-Pacific represented 51.0% of
total international revenue and grew 51.8% on a year-over-year
basis. We believe that D&B will continue to pursue strategic
acquisitions particularly in the emerging economies of the
Asia-Pacific, in order to compensate for the sluggish macro
environment in Europe and North America.
However, the ongoing investigation is a matter of concern for
D&B in our view. U.S.-based companies operating in China are
always subject to heightened scrutiny and strict Chinese privacy
laws make data collection, management and usage of information
difficult. Further, the FCPA violation and the bribery claims
remain an overhang on the stock going forward, in our view.
We believe that the subsidiary, if found guilty of violating
privacy laws may not only attract strict penalty but can also put
D&B's other operations in jeopardy going forward. Moreover, any
adverse finding of the investigation may also hurt customer
confidence, which will have a negative impact on D&B's
subscriber growth over the long term.
We also believe that increasing competition from companies such
as
Equifax Inc.
(
EFX
) and
Moody's Corp
(
MCO
) will hurt profitability going forward. We, therefore maintain our
Neutral recommendation over the long-term (6-12 months). Currently,
D&B has a Zacks #3 Rank, which implies a short-term Hold
rating.
DUN &BRADST-NEW (
DNB
): Free Stock Analysis Report
EQUIFAX INC (
EFX
): Free Stock Analysis Report
MOODYS CORP (
MCO
): Free Stock Analysis Report
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