Reuters OKs $17.6 billion Thomson takeover
EmptyLONDON -- Thomson won approval Tuesday for its $17.6 billion takeover of Reuters from the British company's editorial watchdog, but the deal now faces intense scrutiny from antitrust regulators and unions unhappy about expected job cuts.
The renamed Thomson-Reuters Corp. would reduce the number of major companies providing financial data, news and trading systems to the financial services industry from three to just two and vault it slightly ahead of the current market leader, privately held Bloomberg LP.
The backing of trustees of the Reuters Founders Share company was a crucial first step in creating the world's largest financial news provider. The trust, which controlled what is known as a "golden share," was set up when Reuters listed on the London Stock Exchange in 1984 to safeguard the editorial independence of its journalism.
"We believe that the formation of Thomson-Reuters marks a watershed in the global information business," said Swedish businessman Pehr Gyllenhammar, chairman of the trustee company, whose directors have the power to order any shareholder whose holding exceeds 15% to reduce their stake.
The Thomson family of Canada, which will have a 53% majority stake, agreed to adopt the Reuters Trust Principles as long as it controls Thomson-Reuters, the companies said.
Reuters Chief Executive Tom Glocer, 47, who will head the combined company, said that some "realignment" is likely to occur to meet a goal of $500 million in cost reductions over three years. But he played down the prospect of large-scale job cuts, pointing to the fact that Reuters has already made cost savings totaling around $1.8 billion over the past five years.
Reuters journalists, however, expressed their "deep concerns" in an open letter to Gyllenhammar, "over whether a reconstituted Reuters would maintain the high standards of journalism and the integrity, independence and freedom from bias that have shaped the company's 156-year-old reputation and are crucial to its future success."
The management "just defended it really by saying that it's good for business, it's good for economies of scale," said National Union of Journalists spokesman Barry Fitzpatrick. "It's all about cutting jobs, I would say."
Investor fears that the deal could face a lengthy review by regulators has limited the advance of Reuters shares in London. While they rose 3.2% Tuesday to 624.75 pence ($12.40), that's still almost 10% below the current blended 690.5 cash and stock value of the deal.
"Antitrust authorities in Europe and the U.S. are almost certain to apply a more detailed and lengthy review of the acquisition than is typical, because of the limited number of companies that supply prices, data, news and financial tools," said Simon Baker, an analyst at Credit Suisse in London.
The combination of Reuters Group PLC, founded when Paul Julius Reuter began transmitting stock market quotations between London and Paris via the new Calais-Dover cable in 1851, and relative newcomer Thomson Corp. would generate sales in excess of $11 billion and just beat Bloomberg in terms of market share.
Reuters' market share of 23% and Thomson's 11% would combine for a total Thomson-Reuters Corp. share of 34%, according to April figures from Inside Market Data Reference. Bloomberg, founded by Michael Bloomberg before he was elected mayor of New York City, has a 33% share.
Gina Talamona, a Justice Department spokeswoman in Washington, said the acquisition is "something the Department of Justice's antitrust division would be interested in looking at."
William Baer, an antitrust attorney in Washington, D.C., and former chief antitrust enforcer at the Federal Trade Commission, said regulators will try to get a sense of whether the companies' customers believe a combination will lead to less competition and higher prices, or whether the deal will result in better services or cost savings.
The companies could also argue that they compete in different markets, with Reuters more focused on Europe and Thomson stronger in North America, McDonald said.
While London-based Reuters is known internationally for its general news operation, that is a relatively small part of its business. Only $338.3 million of the company's $5.11 billion in revenue last year came from the media segment -- although its news is a key selling point for terminals as well.
Reuters, which has 16,800 staff and a presence in 131 countries, was the market leader in terminals for years before steadily losing ground to Bloomberg. The company's 196 bureaus around the world will expand Thomson's news organization beyond Thomson Financial News in North America and the AFX News service in Europe.
Thomson has transformed itself from an owner of newspapers and other print products into a leading provider of legal and financial information. It agreed this month to sell its education and publishing-related properties for $7.75 billion, freeing up cash to buy Reuters.
The combined Thomson Financial unit and Reuters financial and media businesses will be called Reuters. Thomson's professional businesses -- legal, tax and accounting, scientific and healthcare -- will be branded as Thomson-Reuters Professional.
Holders of each Reuters share traded in London will be paid the equivalent of about $7 in cash and 0.16 shares of Thomson Corp.'s Toronto-listed stock. The value of the deal is calculated based on Thomson's closing share price of 48.46 Canadian dollars on the Toronto Stock Exchange on May 3, the day before the companies announced they were exploring a combination.
U.S.-traded shares of Thomson rose 16 cents to $42.16 Tuesday, while Reuters' U.S. shares jumped $2.72, or 3.8%, to $74.34.
Shareholders of Thomson, formally based in Toronto but run from Stamford, Conn., would control more than three-quarters of the shares in the new company. In addition to the 53% stake owned by Woodbridge, the Thomson family holding company that now controls roughly 70% of Thomson, other Thomson shareholders will have 23% and Reuters shareholders 24%.
Thomson-Reuters will retain its listings on the Toronto Stock Exchange and the London Stock Exchange. It will also have American Depositary Shares listed on Nasdaq.