Moment of truth

Crunch time at Thomson Reuters - The Wall Street Journal

Thomson family grows restless over Reuters venture - Financial Times

When newspapers run headlines like those, clearly all is not well.

Consider the following elements of what seems increasingly to be a moment of truth:

• A key new product invested with hopes of overtaking rivals fails to gain traction
• Six top executives, one of them considered a possible successor to the chief executive, exit suddenly
• The chief executive takes personal charge of the biggest operating division
• A leading broker downgrades the stock twice in four days ahead of the latest financial results
• The results show sluggish growth dragged down by the ailing operating division
• The controlling shareholder’s displeasure is made known.

All this has occurred in the past week as the corporate stress and strain of Thomson’s takeover of Reuters three years ago came into public view.

Earlier this year the editor-in-chief was abruptly replaced and the editorial department restructured with people new to the company appointed to command positions.

Perhaps tension was inevitable in two culturally disparate organisations in broadly the same industry. What’s new is that it has been exposed.

The Thomson family, Canada’s richest, is said to be impatient with the financial performance of the conglomerate formed by its acquisition of Reuters. Shares in the merged group are lingering only marginally higher than the price it paid for them, and the Thomsons want a better return on their $17 billion investment. Their 55 per cent controlling interest in the business gives them a say in its strategic direction that cannot be ignored. Two years ago the family’s investment holding company Woodbridge forced the delisting of Thomson Reuters shares on the London Stock Exchange and on NASDAQ, leaving trading in New York and Toronto. The purpose was to eliminate a persistent discount at which the London shares had traded to the Toronto shares since the April 2008 merger. Most recently, Woodbridge pressed for a senior management shake-up because of dissatisfaction with the pace of change. Last week’s executive departures were a direct consequence of the Thomsons’ disquiet.

Tom Glocer, a mergers and acquisitions lawyer who parlayed his position as chief executive of Reuters into the same role at the much larger merged group, indicated obliquely in a memo to staff that territorial tensions had hampered progress. “As we work to create a performance-driven culture, let’s make it a culture where results speak the loudest and collaboration is the norm,” he said.

As the latest results show, weak recovery from the global economic crisis has created an unfavourable climate for the company’s products. Sales to investment banks, fund managers and other finance professionals have been slow. These are in the markets division, which includes Reuters news agency and contributes almost 60 per cent of group revenue. The remainder comes from the professional division which provides information to law firms, accountants and other non-financial professionals. That division, whose healthcare information unit was put up for sale last month, continues to be strong. The divestiture is expected to close by year’s end.

The financial industry has not enthusiastically embraced Eikon, a next-generation data and trading platform that brings together many of the ageing Reuters and Thomson legacy products in one desktop package. Eikon is part of a $1 billion overhaul of the group’s product portfolio for financial professionals. The other parts are an ultra-high speed data distribution network and an interactive on-demand video platform. The hope was that it would win customers from Bloomberg and other competitors, but take-up since launch last September has failed to meet targets. “It won't be a Bloomberg killer, but it will reset the bar for Thomson Reuters,” one analyst said.

Analysts who follow Thomson Reuters want to know how and when things will turn around

Amid talk of management turmoil, investment analysts agree Glocer is in the line of fire if results do not improve. The FT, quoting a person close to him, said his new hands-on role marks a departure from his previous management style. “The pressure is on him,” said one analyst. “But he has confidence in his abilities and he’s the man to tackle the job.” Said another: “As he becomes more directly involved … it's going to be very difficult to blame any poor performance on anyone else.” In an internal memo, Glocer admitted that, from a personal perspective, the departures were difficult changes involving people with whom he had worked closely for many years. “No one, me included, gets a bye on performance,” he said.

Analysts who follow Thomson Reuters want to know how and when things will turn around. It is fair to assume that the Thomson family, watching the value of its investment fall or at best stagnate, is even more anxious to know about that and has made its concern known to top management with some force and no little urgency.

Glocer is now preparing a plan to boost the markets division’s revenue growth rate and intends to present it to the board in the next two months. “He will have about a year to make it work, according to several people familiar with the board’s thinking,” Reuters itself reported.

The management changes dominated Glocer’s customary earnings telephone conference call with analysts. He pleaded for patience and cautioned that, in the short term, some disruption is expected. Asked whether his direct management of markets is an interim measure or permanent, Glocer replied: “Permanent is a long time. I’m the ninth chief executive of Reuters in 160 years.” ■