Rescuing Reuters

CEO Tom Glocer hacked and slashed the media giant back into the black. But can he make it grow?

Talk to Tom Glocer's friends about him and you hear words like "witty," "tech-savvy," and "nice." But many of those who have worked with him at Reuters Group PLC (RTRSY ), where he has been chief executive since 2001, have also seen a harsher side. Hailed when his appointment was announced as just the breath of fresh American air needed to propel stuffy but oh-so-profitable Reuters into the 21st century, Glocer was quickly confronted by a collapse of global financial markets plus a host of shortcomings in his own business.

Reuters, world-renowned in journalism and financial data, has been a very sick company. After less than three years in the CEO's chair, Glocer is presiding over a second round of downsizings to cut headcount from 18,200 in late 2001 to 13,000 by 2006. The job losses will feel bigger in places such as London and other financial centers because 1,000 technical jobs are moving to Bangalore and 800 software positions to Bangkok. All told, Glocer pledges that by 2006, Reuters' costs will be $1.6 billion lower than in 2000.

Reuters veterans say the once genteel company is an edgy place these days. Corridor chatter has it that Glocer might have a charming conversation with you one day and fire you the next. No one is immune. Last spring, Chief Operating Officer Philip Green walked the plank. Lesser managers go out the door by the job lot. Not even the handsome Edwin Lutyens-designed art deco building that Reuters has occupied since 1939 at 85 Fleet St. has escaped Glocer's knife. He recently sold the headquarters for $59 million. Reuters will move to Canary Wharf for annual savings of $9 million. And when Reuters goes, Fleet Street, long the home of the British press, won't have any major media tenants left. The only reminder of its storied past will be St. Bride's, the journalists' church.

A FIENDISH CHALLENGE

Glocer, the first American to run the company, sounds brutally unsentimental about the slow demise of the old Reuters culture, which valued its Oxford and Cambridge ties and the intellectual aura they conferred. Asked if he worries about having thrown out too many talented people, he suggests that those who have gone are mainly missed for their sparkling table conversation. In business, "ultimately you do not want to have a lovely recital of philosophically interesting ideas, you want performance." Besides, he adds, "I find dinner with my Reuters colleagues still to be quite interesting. Maybe they don't quote Cicero at quite the same length, but they get things done."

Unpopular as they may be, Glocer's methods are showing results. On Jan. 15, Glocer issued a brief statement saying he was confident that Reuters had "passed the inflection point in our recurring revenue decline." In other words, Reuters is clawing its way out of the sales plunge that triggered a $260 million operating loss on $6.5 billion in revenues in 2002. Operating profits for 2003, which will be reported on Feb. 17, will be $194 million on $5.8 billion in revenues, according to Matthew Owen, a London-based analyst at Morgan Stanley (MWD ). Figuring that Reuters will benefit from the uptick in financial markets, investors have pushed the stock up from $1.72 in March to $5.97 on Jan. 28. Glocer himself is sitting on a nice gain: He bought 140,000 shares of Reuters near the bottom of the market, signaling his confidence.

Glocer has stopped the rot. But can he turn Reuters back into the growth machine it was in its glory days? To do that, he'll have to win back share in the $6.5 billion market for financial-services data. A huge portion of Reuters' revenues come from financial clients.

That will be fiendishly difficult. Until the early 1990s, Reuters basically had the game to itself. Its wire news service was more global than any rival network's. It dominated the lucrative business of selling data terminals to traders, asset managers, and investment bankers, especially in Europe. A proprietary foreign-exchange trading system was the global standard. "They had a wonderful run," says the CEO of a rival data service. "They had premium position and premium price."

That premium position won't come back, not even in a bull market. Privately held Bloomberg LP has grabbed a lot of the most lucrative business with a terminal traders swear by and with the best customer service in the industry. In 1991, Bloomberg had about 4% of global screen revenue compared with Reuters' 55%. By last year Bloomberg had about 44%, a three-point leap from 2002, compared with Reuters' steady 40%, estimates John A. McConville, a financial data analyst at Shore Communications Inc. Reuters still has more screens on bankers' desks than Bloomberg, says David Anderson, editor of Inside Market Data Reference. But it also earns far less per screen than its powerful New York rival. Bloomberg CEO Lex Fenwick -- who succeeded founder Michael Bloomberg, now mayor of New York City -- declined to be interviewed for this story.

The Bloomberg threat is bad enough. A bigger issue is that financial-information services is an increasingly commoditized business. Revenues in foreign exchange trading have come under pressure thanks to a decline in volumes and new entrants such as EBS -- a trading network established by a consortium of major banks to slash their dependence on Reuters. A lot of the same banks are also forcing their employees to economize on use of data terminals, squeezing all the providers. And the news service? It's still one of the best -- but with 24-hour news saturation from television and the Internet, it's increasingly a commodity business, too. Given these conditions, Reuters may not see revenue growth until 2005 or even 2006.

In response, Glocer is simplifying the way Reuters designs and markets its bread-and-butter data products, slashing a list that even included terminals for specialists in Bulgarian and Kenyan equities. "We had 1,300 poorly positioned products," says Devin N. Wenig, president of customer segments and Glocer's closest collaborator. "It was hard to tell sales what to sell. It was hard to tell the customer what to buy."

Next, Reuters hopes to persuade its blue-chip customers to junk many of their $1,350-a-month Bloombergs and replace them with lower-priced Reuters machines. Reuters researchers have been designing a range of screens, priced according to their features, from $200 to $1,250 per month. Glocer is telling the banks that Reuters can save them money by matching each employee with the appropriately priced offering. "What an investment banker does is very different from what a derivatives trader does," he says. "I have never been convinced that they should have the same box or pay the same price." Reuters will also offer 20% discounts for customers who spend over $50 million per year.

But banks won't dump their Bloombergs for cheaper machines unless Reuters convinces them it can provide reliable service. Glocer wants to drum a service ethic into a staff that didn't pay enough attention to the customer. "There was a certain lack of professionalism," Glocer says. He recalls his days as a New York merger-and-acquisitions lawyer working for banks such as Morgan Stanley (MWD ). "You didn't let your phone ring twice because it might be a client." Now, dedicated Reuters teams work with each of its big accounts. A senior Reuters executive monitors the relationship and checks over a list of suggestions from the client each week. "Reuters didn't have [good] support," says one banker negotiating with Reuters. "Now they have developed a very credible sales and support team." The 24 top banks that spend between $18 million and $70 million apiece on Reuters services are the focus of special attention.

Glocer likes to compare his new screens to BMW's 7, 5, and 3 series. The top of the line is Reuters 3000 Xtra in Europe and BridgeStation in the U.S., which go for $1,250 and $900 per month, respectively, before discounts. These screens offer just about all the live prices, modeling features, and graphics that money can buy. A trader can also use them to place orders with 150 brokers. The middle-tier Reuters Knowledge terminal goes for about $700 per month and is aimed at investment bankers. It is heavy on company information. Reuters Plus, a $200-to-$400 cheapo model, goes to U.S. asset managers. It has stock quotes, and the fund managers can punch in their portfolios. Glocer is also adopting some of the features that traders like about Bloomberg, such as Instant Messaging.

Glocer likes to demonstrate the new offerings on a big screen on his office wall. Recently, he took a visitor on a test drive through Reuters Knowledge, the investment banking product, which is designed so that a user can drill to the exact information desired, rather than wading through endless scrolls of stories, as on old Reuters products. He punched up Cisco Systems Inc. (CSCO ), looked up its market capitalization, then moved on into the stock positions of hedge and mutual funds. He also checked out the pay of CEO John T. Chambers, who pocketed a salary of just $1 in 2002 and 2003. "This will be very popular in England," he said, alluding to the criticism of the increasingly rich pay of British CEOs. Glocer took his own lumps for his $3.1 million compensation when Reuters was racking up losses.

"WILD AND WOOLLY"

At such moments it becomes clear that Glocer has many of the attributes that Reuters needs. He understands technology, having taken a large dollop of computer-science courses in his college days at Columbia University. Reuters originally hired the Yale-trained lawyer to do M&A work. In 1996, Michael Sanderson, head of Reuters Americas, told him that he was wasted in legal and offered him Latin America. Glocer later moved up to be Americas chief. When it came time to find a replacement for Peter Job, his predecessor, the list was thin. Glocer emerged as the preferred choice. "He knew the company reasonably well but not over so long a period that he was stuck in its ways," says Christopher A. Hogg, chairman since 1985. Hogg is likely to step down this year. According to speculation, Hogg will be succeeded this year by Unilever PLC Chairman Niall FitzGerald.

Glocer took the helm of a company that pioneered the dissemination of financial news in the mid-19th century by telegraph, rail, and even carrier pigeons. But the bust of the early 21st century exposed serious weaknesses. With bloated costs, Reuters, which had made $1.2 billion in pretax profits in 2000 and whose stock once traded at $46, headed deep into the red. "Glocer got a deck with 50 cards in it," says Shore Communications' McConville. "He was dealt a bad hand."

Reuters' managers were also distracted by investments in businesses such as financial researcher TowerGroup and telecom tracker Yankee Group. As Glocer told a hall packed with worried Reuters alumni recently, the company "had gotten very wild and woolly." Reuters has sold or closed more than 70 of these ventures. Yankee and Tower are on the block. In the latest move, Reuters is selling about 29% of its 49% stake in its TIBCO Software Inc. business-software subsidiary for about $475 million.

The news operation has not escaped the scalpel either. Glocer has mostly pruned money-losers such as online services, while cutting the number of reporters and editors by only 100 to 2,400. "What Tom and I have tried to do is protect core newsgathering," says Editor-in-Chief Geert Linnebank. Still, journalists are seething over mounting pressure on the news budget, which was chopped by about 10% this year, to $360 million, Morgan Stanley estimates. In mid-January, about 40 French-language news employees in Paris went on strike for three days over Reuters' plans to ax one of their fellows. Both journalists and management made concessions to end the dispute.

Rescuing Reuters has been a bigger job than Glocer could have anticipated. Instinet Group Inc. (INGP ), an electronic stock trading company that Reuters acquired in 1987, nearly imploded in early 2002. He slashed costs and merged Instinet with rival Island ECN in a $508 million deal that cut Reuters' stake from 83% to 63%, and raked back $200 million in cash in a special dividend. The huge losses have stopped, and Glocer is interested in using Instinet as a platform for new trading products. But for 2003, Instinet still ran $74 million in the red.

Recently, though, Reuters has announced a number of big wins, such as "a major global information desktop agreement" with Goldman, Sachs & Co. (GS ) in July. Traders prefer Bloomberg, but bank management likes the idea of replacing Bloombergs with cheaper Reuters machines. "It is up to Reuters to prove to our people that their product and service are compelling," says a Goldman source. "We aren't going to impose the switch on our guys, but we would like it to happen because it would be cost-effective." The banks also worry that Bloomberg, which is increasingly offering trading through its boxes, is becoming a threat to their business. Another source says that Goldman is definitely "leaning" to Reuters and that a "major rebalancing of the market is going on."

Lehman Brothers Inc. (LEH ) may also outfit its investment bankers with Reuters Knowledge screens. There the competition is with Thomson Financial (TOC ), the third player. "Reuters is aggressively moving into Thomson's space," says one investment banker. A point in Reuters' favor is that the banks want at least two suppliers. Their offerings are also easier to meld with other software applications than Bloomberg's closed systems.

Glocer clearly still has a long way to go before Reuters is a smooth-running machine. His dictates are not always translated into action. Products sometimes fail to materialize or are delayed: Recently a screen for asset managers called Reuters Intelligent Advisor was put on hold. Cumbersome bureaucracy slows initiative. "The big worry is whether they are going to come out with new products that will restore their market position," says Barry Simpson, an ex-Reuters journalist and co-author of Breaking News: How the Wheels Came Off at Reuters.

Despite the drive to simplify, Reuters remains a complex beast. It is now basing its new financial products on the technology of Bridge Information Systems Inc., some of whose assets Glocer bought out of bankruptcy in 2001. Reuters executives say Bridge is a godsend, with technology that is better at handling huge flows of data than Reuters' old software. Some employees, though, pan Bridge technology.

Could a fixed-up Reuters prove a takeover target? When Reuters went public in 1984, a Founders Share, controlled by an independent Reuters Founders Share Company Ltd., was set up to protect the company from potential predators such as Rupert Murdoch, who might slant Reuters' coverage. A rich enough offer could melt resistance, of course, but this provision certainly would give an acquirer pause. On the other hand, such special status buys Glocer time. He needs it if he wants to leave his mark.

By Stanley Reed

With Tom Lowry in New York

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