Thomson Reuters Sells Stake in Financial Unit to Blackstone-Led Group for $17 Billion -- 2nd Update
By Miriam Gottfried, Jeffrey A. Trachtenberg and Aisha Al-Muslim
Thomson Reuters Corp. struck a deal to sell a majority stake in its financial-information and terminal business for $17 billion to a group led by Blackstone Group LP, a significant bet by the private-equity giant on financial data.
Under the agreement, the consortium will take a 55% stake in the financial and risk unit, which will become a separate privately held firm, and Thomson Reuters will hold a 45% stake. The deal values the new firm, which serves banks, money managers and other financial institutions, at $20 billion, Blackstone and Thomson Reuters said.
The remaining Thomson Reuters business will receive $17 billion when the deal closes, funded by $14 billion of debt and preferred stock and a $3 billion equity contribution. The Canada Pension Plan Investment Board and Singaporean sovereign-wealth fund GIC Pte. Ltd. are investing in the new firm alongside Blackstone.
The deal marks a new chapter for Reuters, a storied news organization that traces its history back to the 1850s. A 2008 merger between Reuters Group PLC and Thomson Corp. represented a bet that combining the news operation with a financial data and analytics business would set it up to weather the storms in the punishing business of news publishing.
Now the news service will be split from the financial and risk business, albeit with a stable revenue line from the newly formed company. The remaining company will supply its news services to the new partnership in exchange for at least $325 million a year over a 30-year contract.
Thomson Reuters's financial and risk business has struggled to generate revenue growth over the years, hurt by cutbacks in spending by banks forced to contend with the fallout from the credit crisis. More recently, it has been hurt by uncertainty among financial institutions in Europe over the adoption of new regulatory rules known as the Market in Financial Instruments Directive, or Mifid II. That uncertainty has curbed spending.
In an interview, Thomson Reuters CEO James Smith said the deal with Blackstone better positions the financial services business "to accelerate growth faster than we can do on our own."
After noting that the business was at a crossroads, he said, "We've gone from declining revenues back to growth. We've moved to new and modern platforms, and improved reliability. Our focus is how to accelerate top-line growth."
For the news business, the agreement provides "a stable floor from the financial-services business that is predictable, with room for annual increases," he said. The news business also generates about $300 million of media revenue today from television stations, newspapers, and other media outlets around the world, as well as corporations that buy news feeds.
For Blackstone, the deal is one of the largest in its history, reflecting the private-equity firm's focus on the value of data. Blackstone has hired data scientists to help it evaluate ways it could profit from nontraditional sets of data. The financial and risk unit, which is a major provider of data to Wall Street trading floors, could become a platform for consolidating some of that data.
"Data distribution and analytics is a very fast-growing space," said Martin Brand, a senior managing director at Blackstone who led the deal, in an interview. "This is one of the very few data assets available at scale."
Private-equity firms typically buy companies and work to improve their businesses by cutting costs or finding new areas of revenue growth in order to sell them for a higher price down the line.
The deal would be the largest corporate buyout to be done out of Blackstone's private-equity funds. The only larger deals the firm as a whole has completed were done in 2007 by its real estate group: its buyouts of Hilton Hotels Corp. and Equity Office Properties Trust for $26 billion and $39 billion, respectively, including debt.
Blackstone is one of the world's largest private-equity firms, with about $387 billion of assets under management. Blackstone's interest in the deal also underscores the pressure that large private-equity firms face to maker bigger bets as they seek to deploy their cash hoards.
During a call with analysts, Thomson Reuters said the pending transaction will leave its news business in a strong position because of the revenue stream from the 30-year deal. After the deal closes, that business will have about $625 million in revenue, slightly higher than its cost basis, the company said.
Thomson Reuters plans to use proceeds from the deal to invest in its legal and tax-and-accounting units, pay down debt and repurchase $9 billion to $11 billion of its stock, it said. The company's market value stood at about $33.1 billion on Tuesday after a 7.1% stock-price increase amid reports of the deal.
Thomson Reuters is controlled by Canada's Thomson family. It competes with Bloomberg LP and Dow Jones & Co., owner of The Wall Street Journal, to sell data and analytical tools to traders of stocks and other securities.
Ben Dummett contributed to this article.
Write to Miriam Gottfried at Miriam.Gottfried@wsj.com, Jeffrey A. Trachtenberg at email@example.com and Aisha Al-Muslim at firstname.lastname@example.org
(END) Dow Jones Newswires
January 30, 2018 20:56 ET (01:56 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.