Reuters has finally signed a definitive agreement to acquire loss-making market data vendor Telerate in a cash and stock deal worth $175 million.
Under the deal Reuters will pay $100 million in cash for Telerate, which is majority-owned by One Equity Partners, along with the 14% stake - or 75 million shares - it holds in Savvis Communications Corporation which was worth $75 million at Friday's closing price.
New York-based Telerate provides benchmark data on fixed-income securities, currencies and derivatives to more than 3500 customers in 85 countries. The acquisition is part of Reuters' efforts to move into the fixed income markets and will enable the firm to step up its challenge against rivals Bloomberg and Thomson Financial in the bond markets.
Tom Glocer, Reuters group chief executive, says: "This acquisition will greatly enhance our recently announced effort to add trading capabilities to Reuters desktops, especially in the fixed income markets, where the substantial Telerate client base will benefit our growing trading community."
For the the first three quarters of the year Telerate reported an operating loss of $34 million before depreciation and amortisation from revenue of $205 million. The company's full-year 2003 revenue was $292m. Reuters expects to spend approximately $82 million integrating Telerate, which will dilute earnings per share for about 18 months. The deal is expected to close in mid-2005, subject to regulatory approvals.
Reuters says the cash purchase price for Telerate could increase by a further $28 million if Telerate manages to cut costs prior to the acquisition. The rise in the purchase price will result in corresponding reduction in Reuters' $82 million anticipated integration costs.
In connection with the Telerate acquisition, Reuters is to acquire Quick Moneyline Telerate (QMT), a division of Quick Corporation that serves as the exclusive distributor of Telerate products in Japan. Under the separate agreement, Reuters will pay £6 million in cash aling with its current 4.85% stake in Quick for the QMT business. The companies have agreed to value the total consideration for the QMT acquisition at £10 million.
Founded in 1969, Telerate was sold by Dow Jones to Bridge Information Systems in 1998. Reuters went on to acquire Bridge in 2001 - although Telerate was not included in the transaction which was reviewed by the US Justice Department under anti-trust laws. Reuters rejected the opportunity to buy Telerate for $15 million at the time.
Last year Reuters filed a lawsuit against Telerate for recovery of $18.3 million debt from unpaid bills. The dispute centred on the provision of market data to Telerate clients from a ticker plant facility in St Louis which Reuters had acquired when it bought Bridge. In today's statement, Reuters says it has agreed a modification and extension of the current contract with Telerate.
Reuters shares were up 1.40% in mid morning trading to 372.50 pence on the news.