* Thomson Reuters offers $22 per share, a 40 pct premium
* FX Alliance recommends shareholders back deal
* Deal expands Thomson Reuters FX business on the buy side
By Jennifer Saba and Kylie MacLellan
NEW YORK/LONDON, July 9 Thomson Reuters Corp
plans to buy electronic foreign exchange
platform FX Alliance Inc for $625 million to expand its
bank-focused currency trading business to fund managers and
More than $5 trillion worth of foreign exchange and FX
derivative transactions take place every day, though the market
is fragmented. Thomson Reuters is a leading provider of
information and trading in the sell-side interbank foreign
exchange market, where it competes against ICAP Plc.
FX Alliance and its competitors, which include Hotspot FX
and State Street Corp, focus on the investment
community, such as asset managers, corporations and hedge funds.
"Each entity is missing a segment of liquidity, so combining
the two is essential to stay competitive going forward in the
very fragmented FX market," Howard Tai, senior analyst with the
Aite Group, wrote of Thomson Reuters and FX Alliance.
"Thomson Reuters' FX matching is mostly an interbroker
electronic platform, whereas FXall is predominately an
electronic platform for corporates and the buy-side community,"
he wrote in a research note.
Thomson Reuters, which provides news and information to
financial, legal, accounting and tax professionals, offered to
pay $22 per share for FXall, a premium of about 40 percent over
its Friday close of $15.70 on the New York Stock Exchange.
Shares of FXall soared 39.9 percent to close at $21.96 on
Monday, the biggest gainer on the NYSE. Shares of Thomson
Reuters edged 0.1 percent lower to $28.44 on the NYSE.
Claudio Aspesi, senior analyst with Sanford Bernstein, said
the acquisition signals Thomson Reuters' dedication to the
financial services business and called the foreign exchange
segment a "bright spot."
"It simply ramps up what is already a very strong market
position in foreign exchange," he said.
Thomson Reuters underwent a series of structural changes and
management shakeups in 2011 to address lackluster performance in
some of its businesses targeting financial and banking clients.
Its businesses aimed at legal, tax and accounting professionals
have been much stronger.
Aspesi said the FXall deal indicated that Thomson Reuters
was prepared to invest in its financial services business, not
just in its professional services.
"If there was a good opportunity within the financial
service area of the company it should be exploited no matter
what. It shows management is confident enough to do that," he
FXall, which provides 24-hour access to forex markets five
days a week, was founded in 2000 and listed on the NYSE in
February at $12 per share. The shares rose as much as 20 percent
in their market debut.
Last week, the company announced a record total average
daily trading volume of $98.6 billion in June, a 10 percent
increase on both the previous month and on June 2011.
UBS analyst Phillip Huang estimated that the acquisition
could add $145 million in revenue and complement Thomson Reuters
existing $1.7 billion foreign exchange business.
The FXall deal signals that the pace of acquisitions is
likely to accelerate over the next few years as Thomson Reuters
looks for growth, particularly in the Financial & Risk segment,
RBC analyst Drew McReynolds wrote in a note.
According to the Bank for International Settlements (BIS),
which tracks foreign exchange turnover globally, dealing between
banks in 2010 fell behind turnover between banks and non-bank
financial institutions -- pension funds, hedge funds, insurance
companies, etc. -- for the first time.
Trades with non banks made up 48 percent of counterparty
turnover in 2010, against 39 percent for traditional interbank
FXall's largest shareholder, Technology Crossover Ventures,
as well as its chairman and CEO, Phil Weisberg, and Chief
Financial Officer John Cooley -- who together own around 32.5
percent of its stock -- have already agreed to tender their
holdings. The board recommended other shareholders also sign up.
Thomson Reuters said it expects the deal to close in the
third quarter. Barclays is advising Thomson Reuters while
JPMorgan is advising FXall.