A decade of change
Tuesday 17 April 2018
Ten years on from the takeover of Reuters by the Thomson organisation, what does the corporate landscape look like?
Thomson Reuters has changed in many ways since the $17 billion acquisition was completed on 17 April 2008.
It changed its chief executive, discarding the man who led the takeover on the Reuters side, Tom Glocer, and promoting a Thomson lieutenant, James Smith, in his place.
It also changed its portfolio of interests, reducing its range of products and selling what it called “non-core assets” - the healthcare information and intellectual property and science divisions built up by the Thomson organisation.
Over the course of the decade, thousands of jobs were exported to offshore centres of cheaper labour in such locations as Bangalore and Gdynia, while others were erased from the balance sheet in successive rounds of redundancies and employee buy-outs.
Now the corporation is in the midst of its most far-reaching change since the takeover: a strategic partnership with the world’s largest private equity firm and the sale of a controlling interest in the group’s biggest business, the global terminals and data division which was acquired when Thomson bought Reuters and is now known as financial and risk (F&R). It is the world’s biggest buyout since the 2008 global financial crisis.
F&R is a highly attractive prospect. Its subscription business model makes it highly cash generative, and most of its revenue is recurring and therefore predictable.
Lucrative though it is, F&R has not been able to withstand more aggressive marketing by its main competitor, Bloomberg. Over the past decade the privately-held New York-based firm has overtaken Thomson Reuters to build a loyal client base and command the largest share of the market for financial information.
The purchaser, Blackstone, thinks it can improve the F&R bottom line by making the operation leaner and more efficient and by using its influence with banking connections to persuade them to dump Bloomberg and take F&R services instead.
When the transaction was announced at the end of January Smith warned of cost cuts, and last month Blackstone chief executive Stephen Schwarzman spoke of “efficiencies” - a euphemism for doing more with less - when he talked to New York bankers.
Blackstone is a Wall Street heavyweight. It pays more investment banking fees than anyone else. So, if you’re a bank and you want some of the debt financing fees generated by the $13.5 billion leveraged purchase of 55 per cent of F&R, you really ought to sign a contract to take F&R data. That’s the deal. Bankers call it reciprocity - a quid pro quo.
The Thomson family of Canada, which controls Thomson Reuters through its holding of 64 per cent of the shares, plans to use proceeds from the sale to buy back its own stock and also to invest in its core businesses. In the new, streamlined Thomson Reuters, that will mean its offerings in the legal, tax and accounting, and regulatory market segments - the bulk of the old pre-merger Thomson corporation.
By every measure, Thomson Reuters will emerge much reduced when the transaction closes in the second half of this year.
From a peak payroll of more than 60,000 seven years ago, the current global workforce of 45,000 will split roughly in half, with about 22,000 staff transferring from Thomson Reuters to the new partnership under revised terms and conditions of employment. The total comprises about 16,000 people currently working in F&R and about 6,000 more across corporate functions to support the partnership. Those moving to the new entity have already been told.
The impact on pension arrangements is still being worked out. There are potential implications for all 7,300 members of Reuters Pension Fund as well as for the Supplementary Pension Scheme for senior executives, which has about 180 members. Thomson Reuters, ultimate parent company guarantor of the two schemes, and Blackstone, which will assume that responsibility when the transaction is completed, are negotiating with the funds’ trustees to mitigate any negative impact on member benefits.
With a 45 per cent minority interest in the new F&R - a $6.1 billion revenue business last year - the Thomson Reuters share price on the New York and Toronto stock exchanges will have to be recalibrated.
Where does all this leave Reuters News?
Over the past ten years, as in previous decades, Reuters has stuck by its tried and tested principles. In an age of demonisation of the media in general and government pressure on journalists in particular, the established ethos of editorial integrity, independence and freedom from bias - formalised when Reuters’ ability to resist external war-time pressures was in jeopardy - has stood the test of time.
The Reuters Trust Principles held up as a code for editorial and corporate ethics could have been cast aside ten years ago. They were not. In fact, they were embraced in their entirety and adopted by the new joint company.
Since then their relevance as a professional compass for Reuters’ 2,500 journalists has been defended robustly and over the past 12 months given prominence as a bulwark against US administration attacks and allegations of “fake news”. A link to the Trust Principles now appears as a postscript to news stories on the Reuters news website, thus proclaiming its editorial standards for all to see.
Adherence to those standards contributed to peer recognition of the excellence of Reuters' journalism by way of multiple awards for text and pictures reporting. Only yesterday, two Pulitzer Prizes were awarded to Reuters journalists. It is the first time the agency has won two of the most prestigious awards in American journalism in one year.
The news agency will remain under the direct control of Thomson Reuters and will still be the jewel in its corporate crown. It will continue to shine, CEO Smith said, “operating with the same editorial independence and rigor, and ever greater commercial viability”.
Greater commercial viability will come from Reuters’ principal customer which will continue to be the F&R business, albeit as a standalone corporate entity under a different ownership structure, with a 30-year commitment to pay $325 million annually in exchange for the right to use news and information feeds supplied by the agency. That adds up to $9.75 billion - more when future inflation is taken into account.
When Blackstone decides to cash in its investment and sell its controlling stake in the new F&R holding company - a strategy seen as possible in anything from three to seven years - the force and worth of that commitment will be open to question.
Sooner or later, Thomson Reuters may be tempted to divest its minority interest in the new F&R, and the buyer of the entire business when Blackstone activates its exit plan may argue it is not bound by the seller’s promise to use Reuters rather than another news vendor for 30 years. Should that occur, it could usher in another era of change for Reuters. ■