FT speculates Thomson Reuters may de-list in London

The likely reason for the symbolic shock of a possible de-listing: the valuation gap between the shares in London and in North America, currently about 22 per cent.

“North American investors are concerned the depressed UK price drags on their stock,” the FT said. “They ask whether further action, possibly including an end to the London listing, may be needed.”

Analysts at TD Newcrest, a Canadian brokerage, summarised the dilemma last week, saying: “We are reluctant to continue recommending [the Canadian stock] when we know that investors can buy an identical economic interest in the company for 22 per cent less via [the London] shares.”

Analysts attribute the discrepancy to hedge fund activity, currency exposures and differing views of the company’s assets on opposite sides of the Atlantic, but many have been startled by the extent of the gap, the FT said.

“Thomson people think the old Thomson [which encompasses legal, healthcare and scientific databases] is greatly underestimated [in London],” said Patrick Wellington, a Morgan Stanley analyst.

UK investors with memories of Reuters’ deep troubles in past market slumps have also been more bearish about prospects for its financial data business, Thomson Reuters Markets, which contributes 60 per cent of group sales and about 40 per cent of profits, the FT said.

“We’re prepared to invest the time and energy and effort with our UK investors to help them understand the dynamics of the business,” chief financial officer Robert Daleo told a conference this week. Extensive investor relations efforts have made little difference so far, however.

The FT said Woodbridge, the Thomson family investment company and the group’s largest shareholder, has attempted to tackle another factor behind the UK discount, providing liquidity to arbitrageurs who struggle to borrow the tightly held Toronto stock by swapping some of its Canadian shares for UK paper.

The strategy has been modestly lucrative. By effectively buying about C$300 million of stock at about a 20 per cent discount, Woodbridge has made about C$60 million, but the sum is small set beside the family holding company’s wealth. Two rounds of such trades have yet to close the gap.

The FT said Woodbridge, which had 70 per cent of Thomson Reuters Corp when the takeover closed, has so far amassed an eight per cent holding in Thomson Reuters Plc. 

The FT said it is thought unlikely that Woodbridge would seek to increase its overall holding beyond the current total, which has edged up from 53 per cent to 55 per cent with dividend reinvestments.

A Thomson Reuters spokesman would not comment on the dual listed  company (DLC) structure, it said. “People close to the company say it has no plans to change it in the next few months. However, board members review the structure regularly, aware that other DLCs, such as Reed Elsevier, have not seen such wide valuation gaps.”

The London shares represent 24 per cent of the group’s value. North Americans now control more than 50 per cent of the UK stock. 

“One theory is that the group can wait until north American ownership is sufficiently high that the majority of London investors ask for Canadian or U.S. stock instead. What that percentage would have to be, however, is unclear,” the FT said.

“Ending the former Reuters’ presence on the London exchange would be a symbolic shock to many.” ■