LONDON Canadian publisher Thomson Corp. TOC.TO TOC.N has agreed to buy Reuters RTR.L for about 8.7 billion pounds ($17.2 billion), creating the world's leading provider of news and data for professional markets.
Reuters Founders Share Company, which has the power to block a change of ownership at the 156-year-old company, backed the deal but it still needs regulatory clearance and shareholder approval, Thomson and Reuters said in a statement on Tuesday.
The U.S. Department of Justice said it was likely to review the deal. Multinational companies need approval from regulators in Brussels, Washington and elsewhere to complete mergers.
With 34 percent of the financial information market, the new Thomson-Reuters will overtake privately-owned Bloomberg LP on 33 percent, according to industry newsletter Inside Market Data.
Thomson said it would do what was required to win antitrust clearance. Reuters Chief Executive Tom Glocer, who will head the combined group, declined to predict how long the process would take but said major disposals may not be needed.
"When the facts are examined as against the myths about the market, the regulatory authorities will say that not only is this a pro-competitive move, but just the dynamics of the market themselves are making it extremely competitive," Reuters Chairman Niall FitzGerald said in an interview with Reuters.
He said the two companies had been talking for nine months.
At Monday's closing prices, Thomson's cash-and-share offer was worth 692 pence per share. Reuters shares closed up 3.4 percent at 623 pence, a discount of 9.8 percent. Thomson shares stood at 46.10 Canadian dollars, down 26 cents, at 1721 GMT.
Analysts said the discount reflects uncertainty about when the deal will close and whether regulators will clear it.
"Partly it's just the uncertainty about how long it will take," Glocer said in the Reuters TV interview.
The companies say the combination is a natural fit across geography and products, bringing together Reuters strength in real-time news and data with Thomson's historical information.
For Thomson, the combination of the two companies adds muscle to its financial services business. For Reuters, it reduces its dependence on financial markets and opens up opportunities in news and research for other professionals.
The Thomson family, which owns 70 percent of Thomson Corp via its Woodbridge holding company, backs the takeover. Two Reuters RTRSY.O shareholders, including one of the largest, ValueAct, have said the offer of 352-1/2 pence and 0.16 Thomson shares for each Reuters share is fair.
Thomson-Reuters will have revenues of more than $11 billion, 60 percent from its combined financial information and news business, to be called Reuters, and 40 percent from its law, tax and science markets, to be called Thomson-Reuters Professional.
The companies expect to make over $500 million of annual cost savings within three years of the deal closing, by reducing duplication in areas including data centers, communications networks and other support services.
When asked, they would not comment on any job losses.
They also declined to put a figure on revenue growth potential. "We just haven't quantified that," Glocer said. "In terms of value creation, I think there'll be multiples of the cost synergies we've talked about today."
Credit rating agency Fitch changed its outlook on Reuters to positive from stable, saying there was more chance of an upgrade to its BBB+ rating following the Thomson deal. Moody's Investors Service, however, said it may still cut its A3 rating.
Woodbridge, which will own 53 percent of Thomson-Reuters, has pledged to support the Reuter Trust Principles of integrity, independence and freedom from bias.
"We are satisfied that the commitments made by Thomson-Reuters and Woodbridge will ensure the endurance and protection of the Reuter Trust Principles in a new and exciting context," Trustees' chairman Pehr Gyllenhammar said in a statement.
Woodbridge will be granted an exemption to the 15 percent shareholding limit set by the Reuters Trust Principles as long as it remains controlled by the Thomson family.
Bear Stearns and Perella Weinberg advised Thomson on the deal. Reuters lead advisers were UBS and Blackstone.
-- Additional reporting by Kate Holton
(Reporters and editors involved in writing and editing this report may own Reuters securities and are bound by the Reuters Code of Conduct, which restricts dealing in securities in companies a journalist is reporting on)