Click here for full-size image

The Details

The cash and stock transaction values Reuters at $17.2 billion (about 33 times its estimated next-year earnings). Holders of each Reuters share will be paid $6.99 in cash and 0.16 Thomson-Reuters, PLC shares. The enlarged group will be called Thomson-Reuters and comprise two business segments—financial services and professional services. The combined Thomson Financial unit and Reuters financial and media businesses will be called Reuters. The legal, tax and accounting, healthcare, and scientific markets of the business will be called Thomson-Reuters Professional and will comprise about 40 percent of the company’s revenues.

The Thomson Corp. chairman David Thomson, a grandson of founder Roy Thomson, will be chairman of the combined company. Thomson-Reuters will be dual-listed, with shares traded in Canada, the U.S., and the U.K. (Additional details are available in this summary document issued by the two companies: www.thomson.com/pdf/corporate/TOC_Reuters_transaction.pdf.)

While the Thomson family and major shareholders will have control of the new company (about 70 percent of the shares), the company will be led by the current CEO of Reuters. If the deal goes through, Thomson president and CEO Richard J. Harrington, 60, who led the transformation of the company from traditional publishing to electronic solutions, software, and services, will retire. Reuters’ CEO, Tom Glocer, 47, will become CEO of the combined company at that time.

In a presentation about the proposed deal, Glocer said that the combined company’s vision was "to be the number one provider of electronic information services, trading systems, and news for professionals in knowledge-based industries."

The Companies

Although Reuters is best known as the world’s largest international multimedia news agency, more than 90 percent of its revenues derive from its financial services business. The company’s core strengths lie in providing the content, analytics, trading, and collaboration tools needed by financial professionals—estimated to be some 370,000 around the world. Reuters’ open technology, based on industry standards, enables its customers to search, store, and integrate its information with content from other sources, facilitating the way they work. Reuters also provides users with specially designed tools to help them reduce risk and distribute and manage market data. It also offers automated trading products for the treasury market.

In addition to the financial-market professionals who rely on Reuters news to trade and make decisions, the company supplies news—text, graphics, video, and pictures—to media organizations and Web sites across the globe.

If you aren’t familiar with the scope of the Reuters’ operations, here are some key facts, as supplied by the company:

• About 16,800 staff in 94 countries
• World’s largest international multimedia news agency—2,400 editorial staff, journalists, photographers, and camera operators in 196 bureaus serving about 131 countries
• In 2006 Reuters filed more than 2.5 million news items, including 656,500 alerts, from 209 countries around the world published in 18 languages
• Real-time data provided on 5.5 million financial records
• Financial information from more than 160 exchanges and OTC markets
• 2006 revenues were $4.7 billion

The Thomson Corp., formally based in Toronto but with operational headquarters in Stamford, Conn., provides electronic workflow solutions to business and professional customers. Thomson provides value-added information, software tools, and applications to professionals in the fields of law, tax and accounting, financial services, scientific research, and healthcare. (Most of the major media outlets covering the acquisition news have unfortunately covered Thomson purely from the financial services side, while ignoring the significant professional side of its business—the side that serves information professionals.)

Harrington joined Thomson in 1982 and was appointed CEO in October 1997. He led the company’s drive to shed print newspapers and move into electronic publishing and data provision. Thomson now derives some 80 percent of its revenue from selling electronic content. In addition to selling its lagging education business unit for $7.75 billion, it has just sold Profound to MarketResearch.com and is in the process of selling NewsEdge.

Thomson has twice the number of employees as Reuters—but not twice the revenue. Here are some key facts, as supplied by the company:

• 32,000 employees
• 2006 revenues from continuing operations were $6.6 billion; 8 percent over prior year
• Operations in 37 countries
• Thomson financial news service has 335 journalists, commentators, and analysts around the globe
• Financial data feeds from more than 160 global exchanges

The Attraction

The companies clearly complement each other—in geography, customer markets, and products—and there would be cost savings from efficiencies. (See the chart of complementary strengths.) The companies said that the diversified revenue streams and a larger capital base would provide a stable platform from which to invest and grow.

In a letter to Reuters employees, Glocer stressed the synergies: "I believe there is a natural fit between Reuters and Thomson, in particular across geography and products. Thomson is more active in the U.S., while Reuters excels in Europe and Asia. Reuters is strong in real-time data and news, while Thomson Financial excels in historical and reference data. In terms of financial trading systems, which have been a key part of Core Plus, Reuters has great strength in FX, while Thomson’s TradeWeb service leads the industry in Fixed Income."

Analyst John Blossom sees the deal as a logical power play in the business-information arena. "Although this is indeed a huge move, it’s also one that comes as much out of necessity as out of desire. For in trying to meet the challenges looming on the horizon for business information services neither the Thomson nor the Reuters approach on their own was likely to meet the challenges ahead." While many observers are speculating on the impact to financial markets, he commented, "With decades of experience in both real-time and media markets, Glocer may have the opportunity to transform Thomson into a far more agile player in global markets for business information." (For his full analysis, see www.shore.com/commentary/newsanal/items/2007/20070514two.html.)

The Opposition

Glocer said that some "realignment" is likely to occur to meet a goal of $500 million in cost reductions over 3 years. But he played down the prospect of large-scale job cuts: "Much will be written in the media about job cuts and there will be some. But far greater value will come from what we can do together." Unions representing Reuters’ journalists had expressed their "deep concerns" in an open letter to Pehr Gyllenhammar, chairman of the trustee company.

Glocer attempted to address employees’ concerns in his letter: "At the outset, let me emphasize that this agreement will preserve all that is Reuters—a commitment to truth, accuracy, independence, and freedom from bias. This has been guaranteed by having Thomson-Reuters and its majority shareholder contract to uphold the Reuters Trust Principles—principles that will be adopted by the combined companies in full."

Some observers predict a long battle with regulators for approval of the proposed deal. One article said that unnamed sources close to the matter predicted "the process could last from nine to 12 months because of the complexity of the market for the products and services they provide." At issue would be antitrust considerations and concerns for smaller companies trying to compete against just two companies that would control two-thirds of the market.

The Implications (Complications)

One industry player could be significantly impacted by this merger. Dow Jones, which has received an unsolicited bid from Rupert Murdoch’s News Corp. (that has thus far been rejected by the Bancroft family that holds majority control of DJ), distributes its news to the financial services market through Reuters and Thomson. Dow Jones Newswires also competes directly with Thomson, Reuters, and Bloomberg.

In the corporate and media markets, Dow Jones partners with Thomson and Reuters to distribute their content to Factiva customers.

When Dow Jones acquired the remaining interest in Factiva from Reuters last year (http://newsbreaks.infotoday.com/nbReader.asp?ArticleId=18468), the deal specified that Reuters’ content would continue to be available through Factiva "until at least mid-2010." In connection with the transactions, Reuters agreed not to compete with Factiva’s core business for a 2-year period and to continue the "exclusivity arrangements currently in place for certain Reuters’ content provided to Factiva." Dow Jones representatives would not agree to my request for an interview but did supply this statement via email: "Dow Jones and Reuters have strong and long term relationship partnerships, including the distribution of Dow Jones Newswires and Factiva content to mutual clients via the Reuters platform. We expect to continue to serve our mutual customers together well into the future. However, we cannot discuss the terms of the agreement."

According to a report in The Wall Street Journal, the board members of Dow Jones "have expressed concern that Dow Jones could be at a disadvantage to those larger rivals, especially in light of the Thomson-Reuters merger. Mr. Murdoch is arguing that News Corp. would help Dow Jones’s strategic position with its deep pockets and global reach."

The bottom-line question about the Thomson-Reuters merger—indeed, any corporate merger—has to be, what are the potential impacts on customers? Clearly, customers in the financial markets would have a more limited choice of providers.