Thomson to save $500 million; investors estimate more
“It's not an overly ambitious target,” about 5 percent to 6 percent of the companies' $11 billion in revenue, said Anthony de Larrinaga, an analyst at SG Securities in London.
Thomson agreed Tuesday to buy London-based Reuters, making it the biggest financial news and information company, with 60,000 employees in more than 196 countries.
Thomson can cut jobs in sales and administration and sell real estate, Chief Executive Officer Richard Harrington said in an interview. Eliminating overlapping departments that compile earnings estimates and price securities will also decrease spending.
“Just these two things will get you a couple of hundred million, easy,” said Paul Harris, a fund manager at Avenue Investment Management in Toronto, which oversees $91 million.
Promised savings of $500 million annually within three years of completing the union would equal about 8.5 percent of the companies' costs, said Simon Baker, an analyst at Credit Suisse in London.
Thomson-Reuters, as the new company will be called, would have to shed as many as 5,100 jobs if it cut 8.5 percent of its workforce, Baker said.
The savings may be worth as much as 250 pence per share, said Johnathan Barrett, an analyst at Kaupthing Singer & Friedlander Capital Markets in London.
Harrington, 60, said he was optimistic savings could be achieved through minimal firings. ----------------- Growth and attrition “We have not been specific whether there will be layoffs,” he said. “Hopefully we're able to get enough growth and through normal attrition to have it be minimal.”
In a memo to employees Tuesday, Reuters Chief Executive Officer Tom Glocer, 47, who will become CEO of Thomson-Reuters, also played down the prospect of firings. “Much will be written in the media about job cuts and there will be some,” Glocer said. “But far greater value will come from what we can do together.”
Thomson, owner of the Westlaw legal database and TradeWeb bond-trading network, offered 691 pence in cash and stock for each share of Reuters, the dominant service for trading currencies. The UK company's stock declined 1.5 pence to 624.5 pence in London Wednesday, 9.6 percent below the bid on concern that U.S. and European regulators may reject the transaction.
Thomson shares rose 75 cents, or 1.6 percent, to C$47.10 at 1:22 p.m. in Toronto.
The company is based in Toronto and much of its staff works in a headquarters building in Stamford, Connecticut. ------------------- Cash and shares
Reuters stockholders will receive 352.5 pence in cash and 0.16 Thomson share for each share, the companies said in a statement. The acquisition won approval from the Reuters Founders Share Co., a board with special voting rights to protect the 156-year-old news service's independence and integrity.
Credit Suisse's Baker estimated the cost savings Reuters and Thomson are predicting to be worth 191 pence per share. Charles Peacock, an analyst at Seymour Pierce in London, said the planned savings would represent about 170 pence per share of the merged company. “There are clear economies of scale, raising the margins of Reuters up to the 29 percent that Thomson has achieved,” he said. ------------------------ Union worries
Bloomberg LP, the closely held news and financial information company founded by New York City Mayor Michael R. Bloomberg, is the parent of Bloomberg News and competes with Reuters and Thomson in selling information and trading systems to the financial-services industry.
Combining with Reuters would lift Thomson's share of the financial data market to 34 percent from 11 percent, compared with Bloomberg's 33 percent share, according to 2006 figures compiled by Inside Market Data, an industry newsletter.
Thomson Chairman David Thomson, a 49-year-old grandson of founder Roy Thomson, will be chairman. Shares of Thomson-Reuters will be listed in Canada, the U.S. and the UK.
Labor unions at Reuters have said they are concerned about potential job losses. The unions, which represent 2,400 editorial staff, called on the Founders Share board to “closely scrutinize” the purchase. The board was established in 1984, when Reuters first sold shares to the public. ---------------------- “Job cuts”
“It's inevitable that there will be job cuts,” said Barrett at Kaupthing Singer & Friedlander. “Reuters has proved it can deliver on cost savings, so they will probably achieve this,” he said.
Analysts said the combined company may exceed the targeted savings by reducing office space, closing call centers, eliminating overlapping products and redeploying or cutting support staff.
Communications costs may also be cut. “There are many ways for us to basically get those cost savings,” Harrington said.
One area that may be spared is Reuters's newsroom, which employs 2,400 journalists in 131 countries, said Chris Diceman, a credit analyst with Dominion Bond Rating Service in Toronto. Thomson's news operation is limited to AFX in Europe and Thomson Financial News in North America. “That wouldn't be an obvious area,” Diceman said. “That area may benefit from being part of a larger organization.”