Reuters Group PLC and Thomson Corp. confirmed Tuesday that they are discussing a combination of their businesses which values Reuters at $17.7 billion.
Thomson would pay $7.03 per Reuters share in cash and 0.16 Thomson shares for each Reuters share. Analysts at ABN Ambro called it a “knockout offer.”
On Friday, Reuters announced that it had received a takeover approach, which sent the media company’s shares 25 percent higher. Thomson announced Monday that it was the suitor.
In an announcement to the London Stock Exchange, the two companies said there was a “powerful and compelling logic for the combination which would create a global leader in the business-to-business information markets.”
The announcement added that “much has still to be resolved and there can be no assurance that agreement will be reached.”
Projected savings of $500 million within three years “is greater than we would expect to be deliverable in a deal with any other suitor,” said Charles Peacock, analyst at Seymour Pierce in London.
A rival bid may emerge, commented Numis Securities, but it also noted the expected synergies and said Thomson was “the bidder best placed to secure Reuters.”
Reuters said the proposed terms, involving cash and equity, would value the stock at $14.07 per share, compared to its closing price on Friday of $12.24.
Woodbridge, the Thomson family holding company, would own approximately 53 percent of Thomson-Reuters, other Thomson shareholders would have 23 per cent and Reuters shareholders about 24 percent, the companies said.
Richard Harrington, Thomson’s president and chief executive officer, will retire when the transaction is completed, and Tom Glocer, Reuters’ CEO, will succeed as chief executive officer of the new company, the announcement said.
Thomson, Reuters and Bloomberg LP compete in providing data terminals to the world’s major banks and brokerages. Reuters, which also has a general news service, was the market leader for many years, though it has steadily lost ground to Bloomberg.
By combining with Reuters, Thomson would pull close to Bloomberg in market share. An April report from Inside Market Data Reference said Bloomberg has 33 percent of the market share, with Reuters at 23 percent and Thomson at 11 percent.
Thomson, based in Stamford, Conn., has transformed itself in the last decade from an owner of newspapers and other print products. It has built up its legal information business, and is about to sell Thomson Learning, its book division for about $5 billion.
The company has 32,000 employees and had sales in 2006 of $6.6 billion.
While Reuters is known internationally for its general news operation, that is just a small part of the company’s business. Of Reuters’ 2006 revenue of $5.11 billion, $338.3 million of that came from the media segment — although its news is a key selling point for terminals, as well.