Blackstone pursues $17bn deal for Thomson Reuters data unit
Blackstone is poised for its largest deal since the financial crisis by pulling together $17.3bn to take a controlling stake in the financial terminals and data business of Thomson Reuters, making the US money manager a direct competitor to Bloomberg.
The transaction would pit the firepower and network of Stephen Schwarzman, who oversees $387bn in Blackstone funds, against fellow billionaire and former New York mayor Michael Bloomberg, who dominates Wall Street’s financial information industry.
Blackstone is one of the biggest fee payers to investment banks, who rely heavily on the data provided by Thomson Reuters on its Eikon terminal and through Mr Bloomberg’s ubiquitous terminals.
The takeover would be a high-profile moment for Blackstone’s private equity business, which recently had taken a back seat to its real estate investing arm. It is also the biggest change to Thomson Reuters since it was formed through the acquisition of London-based Reuters by Canada’s Thomson in a deal valued at £8.7bn at the time.
The deal could be announced as soon as Tuesday evening. It would mark the latest example of a private equity group spending billions on a deal after raising large amounts for buyouts, much of which is while struggling to find targets.
Under the terms of the deal, Blackstone would acquire a 55 per cent stake in Thomson Reuters’ financial and risk division. The unit would be carved out into a new company, with Thomson Reuters owning the remainder.
The transaction would value the division at about $20bn, according to people informed on the situation.
To pay for the deal, Blackstone is working with two of the largest global institutional investors, Canada Pension Plan Investment Board and Singapore state fund GIC.
Together they are set to contribute between $3bn and $4bn in cash, with Blackstone putting in the largest amount. More than $13bn of new debt would also be raised and sit on the carved-out unit’s books.
The cash contribution from the investors plus the money raised from the debt mean that Thomson Reuters would receive $17.3bn for its participation in the deal. About $3bn in existing debt would be put on the unit’s books.
Shares in Thomson Reuters rose 6.7 per cent to $46.32, giving it a market value of close to $32bn and an enterprise value of about $40bn in late New York trading. Canada’s billionaire Thomson family controls just over 63 per cent through a holding company.
Blackstone stock fell 2 per cent to $35.83.
Although Blackstone has led larger buyouts, they have been run by the group’s sprawling real estate division, which now makes up the bulk of its assets under management.
The roughly $3bn in cash from Blackstone would represent the largest cheque it has written for a non-property related private equity acquisition.
The Thomson Reuters unit, which includes the Eikon trading platform launched eight years ago, accounted for $6.1bn in 2016 revenues — more than half of the Canadian company’s sales. It reported $1.63bn in adjusted earnings before standard deductions.
Despite having invested heavily to attack Bloomberg’s terminal business, Eikon has been marred by complaints of slowness and lacklustre performance.
“Reuters may be looking to reduce exposure to the sector given the challenges,” an industry analyst said. “From a private equity buyer’s perspective, they are looking to buy a business that generates a lot of cash and where they can cut costs.”
Bloomberg’s grip on the sector grew in 2016 with a market share of 33.4 per cent versus 23.1 per cent for Thomson Reuters, according to consultancy Burton-Taylor.
The deal will not include Thomson Reuters’ newsgathering operation or its businesses serving the legal, tax and accounting communities, the Toronto-based media company said in a short statement.
Blackstone has agreed to pay Reuters News $325m per year for 30 years as part of the deal. The division ran at an operating loss of about $381m in 2016, according to Thomson Reuters’ annual report*.
Last year Thomson Reuters teamed up with Symphony, a messaging platform backed by the likes of Goldman Sachs and BlackRock, in its latest bid to break Bloomberg’s grip on chat messaging — where financial sector employees write to each other via their Bloomberg terminals instead of over email.
The Anglo-Canadian company had earlier offered financial institutions the chance to use its Eikon messaging tool without a subscription to the platform. In 2013, UK data provider Markit also agreed a venture with Thomson Reuters to link the messaging systems of many of the world’s biggest banks.
Sales of data terminals to banks and asset managers have come under increasing pressure in recent years as Bloomberg, FactSet and Reuters’ terminals and data businesses have competed for a shrinking customer base, analysts in the sector have warned.
“There are regulatory headwinds for this business,” Neil Campling of asset manager Mirabaud Securities said of Thomson Reuters’ financial and risk division.
Fund managers who use Thomson Reuters’ data and research products are “in the early stages of a wave of industry consolidation” following intense regulatory and political pressure to reduce the fees they charge investors, he said.
Investment banks, meanwhile, could reduce their expenditure on financial data products following the introduction of the Mifid II rules that have shaken up how investors pay banks for some services.
*This article has been amended since original publication to correct the operating loss figure
Additional reporting by Naomi Rovnick in London