Competition authorities in the U.S. and Europe on Tuesday approved Thomson Corp.'s £8.77 billion ($17.15 billion) acquisition of rival news and data provider Reuters Group plc.
The combination of Toronto-based Thomson and London-based Reuters will create the world's leading financial information company and eclipse Bloomberg LP as the top provider.
Thomson and Reuters predicted the merger would generate annual synergies of $500 million within three years. Company officials said they expect to close the deal the week of April 13.
Lawyers at the U.S. Department of Justice required the companies to sell copies of three financial data assets to address overlaps in the business lines of fundamentals data, earnings estimates and after-market research reports, where the two companies either are sole rivals or account for more than 70 percent of the global market. A copy of the historic databases for those three areas must be made available to a company that wants to create a rival to the news and data giant.
The divestiture package was "consistent" with a separate one negotiated between the companies and the European Commission, which also cleared the transaction Tuesday. The DOJ had been scheduled to rule on the union last month but changed its timetable to match the EC's schedule. The EC had until March 10 to make its final ruling.
"The merging parties have offered a remedies package that provides strong safeguards that users of financial data will not be harmed by this major consolidation," Competition Commissioner Neelie Kroes said in a statement.
The companies agreed to sell databases containing "such financial information products, together with relevant assets, personnel and customer base as appropriate to allow purchasers of the databases and assets to quickly establish themselves as a credible competitive force in the marketplace in competition with the merged entity," according to an EC statement.
"Without the asset sales, U.S. users of institutional financial data likely would have faced higher prices and reduced innovation as a result of this transaction," said Department of Justice Assistant Attorney General Tom Barnett. "The remedy will ensure that participants in the financial markets will continue to receive the benefits of competition."
New competition was unlikely to enter the market without the divestiture, according to the DOJ's court filing, because building the infrastructure to deliver similar news and data services faces high hurdles. By allowing someone to buy the historic database, the DOJ allows someone "to offer institutional financial data users products comparable to those offered by Thomson or Reuters prior to the merger."
Under the terms of the proposed settlement, Thomson and Reuters must sell copies of the data contained in the following products: Thomson's WorldScope, a global fundamentals product; Reuters Estimates, an earnings estimates product; and Reuters Aftermarket Research Database, an analyst research distribution product. The proposed settlement further requires the licensing of related intellectual property, access to personnel and transitional support to ensure that the buyer of each set of data can continue to update its database so as to continue to offer users a viable and competitive product. The EC also required the sale of a copy of Reuters Economics.
Under the terms of the U.S. consent decree, the DOJ must approve the buyer, but the deal can close while awaiting a buyer to either step forward or be approved.
Ever since the proposed union was first made public last May, analysts and antitrust lawyers predicted regulators would likely approve the merger, assuming divestitures were made. Shares in Reuters were up less than 1 pence, or 1 percent, at 607 pence in London, valuing the company at £7.5 billion. Thomson shares were down 87 Canadian cents, or 2.5 percent, to C$33.53 Tuesday morning in New York. At that price, the company has a value of C$21.8 billion ($21.4 billion).
Failing to follow settlement terms after closing can land a buyer in hot water. In November, the DOJ took two companies to court for not complying with divestiture orders they agreed upon. In one case, a company restricted a trustee's ability to review information that it had agreed to make accessible to a trustee. In another, government lawyers claimed the company did not maintain the asset slated for divestiture in its originally saleable condition.
Companies have experienced other difficulties with the DOJ's post-merger divestiture arrangements. Luxembourg-based ArcelorMittal, the world's largest steel company, was created by a merger between Mittal Steel Co. NV and Arcelor SA, a deal DOJ lawyers said was anticompetitive and approved contingent on the sale of Dofasco Inc.
When that asset didn't sell, a DOJ-appointed trustee took up the task of selling off the Sparrows Point Mill. A buyer was lined up, but the deal cratered in the wake of funding concerns. The trustee has hired an investment bank to help find a buyer.
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