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UPDATE 2-MSCI to sell proxy advisory firm ISS for $364 million

(Adds analysts' comments, updates shares)

March 18 (Reuters) - Stock market index provider MSCI Inc said it would sell influential governance unit Institutional Shareholder Services (ISS) to private equity firm Vestar Capital Partners for $364 million to focus on its risk investment products and services business.

The company said in October that it was exploring the sale of ISS, which had been through a series of owners before MSCI bought it in 2010.

"This sale would not only remove potential conflicts of interest within MSCI's business model, but the MSCI stock could benefit as we believe ISS was not being properly valued," Macquarie Capital analyst Kevin McVeigh said.

MSCI's shares have gained 12 percent since October.

ISS has come under much criticism in recent times as companies and trade groups such as the U.S. Chamber of Commerce have questioned its methodologies and periodic opposition to management on various high-profile matters.

Firms such as ISS advise shareholders on how they should vote on matters related to corporate takeovers, board nominees and executive pay.

Morningstar Inc analyst Peter Wahlstrom said he does not view any major strategic shift from the new owners.

"It is a pretty established business with good cash flow and if a private equity sponsor has purchased that business, there are certain attributes they like," Wahlstrom said.

ISS has more than 1,700 clients for its corporate governance services -- well ahead of competitors such as Glass, Lewis & Co -- and accounted for about 12 percent of MSCI's operating revenue of $1.03 billion in 2013.

Analysts said MSCI managed to get a good price for the business.

"The company is getting three times revenue for the sale of that business and is left with a more higher margin and more streamlined MSCI," said Wahlstrom.

Joel Jeffrey of Keefe, Bruyette & Woods said the sale price was at the high end of his estimated range. Jeffrey has a "market perform" rating on the MSCI stock.

The deal is expected to close within the next three months, MSCI said.

Vestar was part of a group that acquired Del Monte Foods in a $5.3 billion deal in 2011. The group included KKR & Co LP and Centerview Capital.

Morgan Stanley served as financial adviser to MSCI and Davis Polk & Wardwell LLP was the legal adviser.

Shares of MSCI were almost flat at $45.61 at midday on the New York Stock Exchange.

(Editing by Sriraj Kalluvila and Maju Samuel)

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