News and financial data provider Reuters said on Friday it had received a takeover approach, sending its shares up almost a third, with Canadian publisher Thomson widely touted as the mystery suitor.
Canada’s Globe and Mail newspaper and several United States and British publications reported on their websites that the bidder was Thomson, citing sources familiar with the situation. The Financial Times later reported on its website that Reuters looked set to endorse an offer from Thomson.
Reuters declined to name its suitor, while Thomson had no comment throughout the day. But Reuters second-largest shareholder, ValueAct, said depending on the offer, it would support a sale and a merger with Thomson would be a ”fabulous combination”.
Reuters shares leapt as much as 32% to a five-year high of 649-3/4 pence, valuing the company at about £8,2-billion, on hopes a bid would spark an auction for the world’s biggest international news agency.
Media shares have surged since Tuesday when Rupert Murdoch’s News Corporation made a $5-billion bid for Wall Street Journal owner Dow Jones, which was rebuffed by Dow Jones’ controlling shareholders. That $60-a-share-bid was a 65% premium to Dow Jones’ closing price on Monday.
Thomson has been building up its financial news business and is in the process of selling its education division, which analysts think could raise $5-billion.
The Toronto-based firm lies third in a financial information market dominated by Reuters and privately-owned Bloomberg, and buying Reuters would give it a clear market lead while also offering considerable cost savings, according to analysts.
In particular, Reuters strength in sales and trading would fit well with Thomson’s strong base with money managers and investment bankers.
”Thomson and Reuters would be a good fit,” Numis Securities analysts wrote in a research note. Other analysts said a trade buyer could pay up to 750 pence a share for Reuters.
Traders said there were hopes a bid from Thomson could spark an auction, with News Corp, web search group Google, software giant Microsoft and private equity groups possibly working with management tipped as possible bidders.
Bloomberg said it was not looking to buy Reuters.
”Reuters will add to Thomson Financial’s position in institutional fixed income and sales and trading,” Merrill Lynch analysts wrote in a research note. ”There could be a large amount of cost savings potential, but the integration process will likely be challenging and complicated.”
One banking source said Thomson was unlikely to be able to pay for a deal fully in cash, while an anti-trust lawyer in Washington, who requested anonymity, said it could face ”really serious issues” with competition regulators. Thomson’s First Call data service, for example, competes with Reuters Estimates.
Reuters shares closed up 25,1 percent at 615-3/4 pence, their biggest daily rise since flotation in 1984. Thomson shares were down less than 1%, valuing the business at about 31-billion Canadian dollars.
Golden share
”There is no certainty an offer will be made or necessary approvals, including those required under Reuters constitution, will be received,” Reuters said in a statement.
Under Reuters ownership structure, a single golden share held by the Reuters Founder Share Company can block a hostile bid.
The Reuters Founder Share Company is run by 15 trustees charged with ensuring the ”independence, impartiality, integrity and freedom from bias” of the global news organisation.
An agreed bid, however, would be possible.
Reuters trustees were not immediately available for comment.
European Union Internal Market Commissioner Charlie McCreevy is keen to crack down on golden shares and has won backing in the European Court of Justice. McCreevy sees golden shares as hindering a basic tenet of the EU, the free movement of capital.
Reuters was founded in 1851 when German-born immigrant Paul Julius Reuter opened an office in the City of London that transmitted stock market quotes between London and Paris via the new Calais-Dover cable. A few years before that he used pigeons to fly stock prices between Aachen and Brussels.
The business now makes more than 90% of its revenues from its financial services business.
Hit hard by the downturn in markets after the dot.com bubble burst, Reuters under chief executive Tom Glocer has cut costs and sold off non-core assets such as electronic broker Instinet and has recently benefited from a recovery in financial markets.
Thomson expanded its financial news content last year by buying London-based AFX News for around $20-million. The new Thomson-branded service is set for launch by the end of June. Thomson expects to announce a buyer for its education assets by end-June and has said it would use the proceeds to pursue growth.
The cost of insuring Reuters debt against default swung, dealers said, with five-year credit default swaps reaching a high of around 41 basis points before falling back to around 34 basis points, still 12 basis points higher on the day. – Reuters