Reuters in Play as Media Deals Heat Up
Reuters (RTRSY), the giant London news and data provider, confirmed on May 4 that it had received an approach that might lead to a takeover offer. The buyer has not been identified, but the mystery suitor is widely expected to be Canadian rival Thomson (TOC), which is moving aggressively into financial information.
Thomson has put its education publishing division, worth an estimated $5 billion, on the block, which would give it the firepower to buy something else. A Thomson spokesman said the company had no comment at this time.
Shares in Reuters leaped by around 25% on the London Stock Exchange to 617.50 pence ($12.30) and were up 26% in early Nasdaq trading, to $74. That values the company at nearly $16 billion.
Appetite for Media
Coming in the same week as News Corp.'s (NWS) unsolicited bid for Dow Jones (DJ) and only weeks after billionaire Samuel Zell paid $8.2 billion for beleaguered Tribune (TRB), the exploratory Reuters deal reconfirms a growing global appetite for media and information services companies. Reuters declined to comment (see BusinessWeek.com, 5/14/07, "Crazy Like A Fox").
Shares of other media companies climbed on the news. Already on edge because of Rupert Murdoch's Dow Jones approach, London-based Pearson (PSO), owner of the Financial Times and 50% of The Economist, leaped again.
Even London music giant EMI saw its shares jump on speculation of a private equity bid. The sense in the investment community is that with their depressed prices—due in part to the perceived threat from new-media giants such as Google (GOOG) and Apple (AAPL)—many such "old" media companies are relative bargains.
To be sure, Reuters is not one of those depressed companies. Primarily a purveyor of financial data delivered in digital format, it is much more new media than old.
In fact, the possible takeover attempt comes at a time when the company is in much better shape than it was at the beginning of the century. At that time it struggled because of competition from a nimbler Bloomberg and a slump in the financial services industry. The share price took a heavy beating.
Chief Executive Officer Thomas Glocer, who took the top job in 2001, has streamlined Reuters, selling off many noncore businesses, slashing costs and head count, and improving the product line (see BusinessWeek.com, 2/9/04, "Rescuing Reuters"). "Glocer has done a good job restructuring the company," says Paul Richards, an analyst at Numis Securities in London. "He can negotiate from a position of strength." Another advantage: The overall financial services market is picking up sharply—especially in the Europe, Middle East, and Africa region, a Reuters stronghold.
Born in 1959, Glocer is a New York native and graduate of Yale Law School, where he once designed a computer game to illustrate a civil procedure course. He is also the first nonjournalist to run the company.
Formerly a mergers and acquisitions lawyer at the New York firm of Davis Polk & Wardwell, Glocer has shaken up Reuters' complacent culture, clearing out dead wood and insisting on a service ethic. He delights in demonstrating new Reuters products to visitors. As if to symbolize a new era, he moved Reuters from its longtime art deco headquarters on London's Fleet Street to a brash bastion at Canary Wharf, London's new east-side financial center.
Any potential sale of Reuters would be complicated by the existence of the Founders Share, which can be used to block unwelcome efforts to gain control of the company. The Founders Share is controlled by an independent body set up to protect Reuters' journalistic integrity.
Right Group, Right Price?
The directors of the Founders Share company include Pehr Gyllenhammar, the former Volvo chief, and Joseph Lelyveld, former executive editor of The New York Times (NYT). In practice, though, analysts think Reuters could be sold to the right group at the right price. Richards of Numis forecasts that Reuters' profit before tax will rise by 14% in 2007, to about $630 million, on sales of about $5.3 billion.
Although Reuters gains much visibility from its far-flung news operation, its main business is providing financial information and services to traders, brokers, and fund managers through screens and data feeds. Such activity accounts for 80% of the company's revenue. Reuters estimates that in 2006 it captured about 27% of this market (competing with, among others, Bloomberg and Thomson), which it pegs at about $12 billion globally.