Avoidance of debt said key to success of Thomson Reuters deal
Tuesday 29 December 2009
Thomson's takeover of Reuters fared better than other media deals that have since turned sour because the Canadian group avoided taking on vast debts, says Geoffrey Beattie, the combined group's deputy chairman.
Beattie, who is also president of the Thomson family’s investment company Woodbridge – 55 per cent shareholder in Thomson Reuters – said that by using “super profits” from selling college textbooks arm Thomson Learning to private equity buyers, “we went in completely financially hedged”.
Thomson worked on tax planning for the cash and stock deal for two years, Beattie told the Financial Times. Since then, “in the darkest days of last year”, Woodbridge has bought back C$500 million of stock at depressed valuations.
Thomson Reuters has been one of media’s most resilient performers, and avoided the shocks delivered by peers such as Reed Elsevier, the FT said.
Canada’s richest family shocked their industry by selling The Times and The Sunday Times to Rupert Murdoch in 1981, but after the crisis of the past two years the unsentimental decision to trade out of print media for better long-term opportunities looks like part of a pattern, the FT said.
“Having pocketed $7.75bn, $2bn more than outsiders had expected, Thomson revealed a £7.9bn offer for Reuters, in the same month as Mr Murdoch’s News Corp doubled up on newspapers with a $5.6bn bid for Dow Jones. The deal transformed its Thomson Financial division into a market data leader on a par with Bloomberg and diversified a portfolio focused on professional information systems for lawyers, scientists and accountants.”
Thomson Reuters has not been immune, however. The former Thomson Corp share price, which topped C$50 in early 2007, now stands below $34.
Beattie describes the difference between the family’s fortunes and those of others as the difference between building and trading. Whether or not a controlling shareholder represents a family, “when you have big illiquid positions, you have to be much more focused on risk management and longer-term market cycles”.
The typical institutional shareholder may hold a stock for less than six months, but families cannot trade in and out of their investments, he notes. The advantage is they avoid trading costs, think more carefully about the merits and proper risk-return ratio of their assets, and know that “from time to time there will be opportunities where the market gets ahead of itself”.
“We know there are always bumps in the road but long-term investors win over short-term investors. It’s a kind of religion [with the family]”, adds Roger Martin, a Thomson Reuters director and dean of Toronto university’s Rotman management school.
He notes that there is a difference between family investors such as Woodbridge, whose economic stake matches their voting control, and those who use super-voting rights to magnify their power over their groups. “There’s a nice moral authority point there. It’s not just a management that doesn’t own any shares in the company saying, ‘Don’t worry about the share price, we’re doing everything we can.’” ■
- Financial Times