Tom Glocer’s careful courting of the Thomson family has paid off, but not in the way he initially expected.
The Reuters chief executive has paid discreet visits to Canada over the past two years, to see if the majority shareholders of Thomson Corporation would sell him Thomson Financial.
The division, which sits alongside Thomson’s legal, regulatory, scientific and healthcare businesses, had played an important role in chief executive Dick Harrington’s efforts to transform the group from its print origins into a digital supplier of premium information to “knowledge workers” in different professions.
However, despite strengths in investment management, retail wealth management and investment banking niches, Thomson Financial trailed in third place behind Bloomberg and Reuters in the global market for financial information.
The appeal for Mr Glocer was the chance to build a new global market leader, erasing the painful memories of how Bloomberg stole its lead in the 25 years since a former Salomon Brothers bond trader called Mike Bloomberg installed his first terminals.
Bloomberg’s pricing power has given it estimated profit margins of above 30 per cent, compared with a Reuters target of getting its margins up to 17-20 per cent.
The Thomson family, however, seems to have seen its own opportunity: to transform Thomson Financial from number three in its market to number one, and to build its group into a more potent competitor against the likes of McGraw Hill, Reed Elsevier and Wolters Kluwer.
What changed since Mr Glocer’s first approach was Mr Harrington’s decision to part with Thomson Learning. Unlike Thomson Financial, which derives 98 per cent of its revenues from digital sources, the education division is still predominantly a textbook business.
The Thomson Learning auction is expected to reap more than $6bn. That alone will cover almost all of the cash-cost of buying Reuters.
By turning the original deal on its head, Mr Glocer has secured a premium for his shareholders and the top executive job in the newly merged company. Although the full details of the board have yet to be disclosed, it appears that the new company will reflect the influence of both Mr Glocer and the Thomson family.
The new Thomson-Reuters will be chaired by Geoff Beattie, a close counsellor to the family who runs its holding company, Woodbridge. The deal has been structured to ensure the Thomson family will hold just over half of the shares, and will therefore retain control.
The deal is a landmark for David Thomson, whose father died last June. Ken Thomson was widely admired for his unemotional approach to selling the family’s travel and newspaper holdings, and allowing professional managers to reinvest the proceeds in faster-growing information services markets.
Mr Glocer will become the latest in that line of outsiders entrusted with the Thomson assets when Mr Harrington steps down after 10 years at the helm.
Reuters’ first US-born chief executive will bring with him Devin Wenig, his second-in-command, as head of the newly merged financial division, which will take the Reuters name and account for an estimated 60 per cent of the group’s revenues.
Reuters shareholders face the prospect of becoming minority holders in a family-controlled company, with a 24 per cent share of the merged company. However, their directors will account for a third of the seats on the board.
Having won over the Thomson family, Mr Glocer will now have to convince both companies’ independent shareholders, the Reuters Founders Share Company, and the competition authorities.
Analysts believe that antitrust issues could delay completion of the deal, but do not expect them to derail the takeover. Meg Geldens of Man Securities, citing Thomson’s extensive legal information business, said on Tuesday: “They must be well connected to the legal community in the US. It’s not as though they don’t know who to call.”
If Mr Glocer leaps all these hurdles, he will then face the challenge of integrating two former rivals and extracting an estimated $500m of annual synergy benefits. Given the restructurings he has overseen at Reuters, he is likely to know where to start.