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Time to pull the plug on TRI? WSJ thinks it may be soon

Investors in Thomson Reuters, whose shares remain 13 per cent below where they were when the merger closed in April 2008 and whose sales growth is in doubt, may soon decide to pull the plug, The Wall Street Journal said on Wednesday.

In a take-out in its Heard on the Street column, the newspaper said that when Thomson and Reuters merged employees from the two sides suffered a typical culture clash. Nearly five years later it is investors in the combined company who may feel most out of place.

The fall in the shares partly reflects difficulty integrating two large, international companies, the Journal said.

“Another challenge concerns Eikon, a market-data system launched by the company in 2010. Analysts estimate it cost a billion dollars to develop and was designed to replace many existing services, but it hasn’t yet lived up to expectations.”

The Journal noted that sales of market-data products, which account for most of revenue, were $7.5 billion last year, compared with $7.9 billion in 2008. And the group’s market-data sales may not grow much any time soon. Some of its biggest clients are banks whose revenue remains under pressure and are laying off thousands of employees.

Some clients such as wealth managers and hedge funds may have better prospects – but they also have plenty of other choices.

“The chief rival is Bloomberg, whose sales and pricing power held up even through the recession. And while its main service is more expensive than Eikon, many users are hooked on features like Bloomberg’s messaging service, a popular means of communication on Wall Street.”

Even keeping existing Thomson Reuters customers may be tricky, especially if the company tries to convert them to a more expensive Eikon package, the Journal said. One potential solution of offering discounts to encourage upgrades could erode margins.

Thomson Reuters’ legal group, which accounts for about a quarter of revenue and an even higher percentage of profits, is also under pressure, the Journal said. As with banks, law firms have looked for ways to save since the recession. And competition in legal research has intensified with deep-pocketed Bloomberg expanding  its offerings with the purchase of legal research firm BNA for nearly $1 billion in late 2011.

Thomson Reuters’ shares aren’t cheap at 17.6 times 2013 earnings, the Journal said. The stock enjoys some support because of its healthy four per cent dividend yield. And the free float is curtailed by the fact that just over half the company is owned by the Woodbridge Company, controlled by the Thomson family.

“But with sales growth in doubt, other investors may soon decide to pull the plug.” ■

The Wall Street Journal