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No, the data feed isn’t broken. The London-listed shares of ThomsonReuters, the information provider created by a merger last month, continue to trade at a huge discount to those listed in Toronto. Dual-listed shares rarely trade with perfect efficiency, but a gap of this scale, about one-fifth, is unheard of.
Short-term technical factors are at play. As this is a dual-listed company, the only way to unwind the classic merger arbitrage trade – long Reuters, short Thomson – is to sell Thomson Reuters in London and buy in Toronto. Yet the shortage of buyers in London also reflects very different views of the new company’s prospects.
The Canadian holders of Thomson Reuters still see it as a mostly defensive professional publisher. Strong first quarter sales figures last week supported the thesis that the combined group is resilient. About half of revenues and earnings before interest, tax and amortisation come from the less volatile professional division. And, more by chance than by design, the combined financials business has limited exposure to the worst-hit areas – fixed income accounts for just 7 per cent of combined group sales.
The view from London, meanwhile, is that the Canadians have no idea what is about to hit them. Reuters (40 per cent of combined ebita) is still seen as a hostage to the fortunes of its main customers, the investment banks. During the last downturn it was clobbered. Underlying revenues fell by almost a fifth between 2001 and 2003. Even after five long years of restructuring, ebita margins fell from 15.4 per cent in 2001 to 12 per cent in 2006. The shares troughed only when the rate of contract cancellations stabilised; that was not until the first quarter of 2003.
The London listing cannot be ignored. It may only represent 39 per cent of the free float, but it accounts for 57 per cent of trading activity in the combined company. Tom Glocer, chief executive, hopes to work on the UK shareholders. Either they don’t get the professional side of the business or they understand the financial side all too well.
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