Reuters bid to acquire a number of the assets of Bridge Information Systems has been declared the 'highest and best' by Bridge. Because of Reuters market position in the financial services sector, several legal and regulatory hurdles have to be overcome before the deal is confirmed.
The Chapter 11 auction process has seen Reuters and SunGard emerge as key contenders for the various Bridge businesses. The current position of SunGard's bid has not been confirmed. Despite this positive statement from Bridge itself, Reuters bid remains subject to approval by a Bankruptcy Court in St. Louis at a hearing scheduled for Thursday, 3 May. Thereafter necessary regulatory approvals will also be needed.
Reuters bid focuses primarily on the acquisition of Bridge’s content and trading applications for US institutional securities businesses, including: Bridge Information Systems (in North America), a range of products targeted at institutional equities traders and portfolio managers; EJV, which provides bond pricing, data and analytics services; Bridge Trading Technologies (BTT), which provides software, information and transaction services to connect brokers and their buy-side clients, including indications of interest, order routing, order management, portfolio management and valuation services (this also includes Bridge Trading, a licensed broker dealer, primarily in NYSE-listed securities); eBridge, which provides internet solutions to institutional firms; and CRB Index, a measure of US commodity prices.
Reuters executives believe Bridge’s buy-side position in the US complements Reuters international sell-side position. The addition of Bridge’s transaction services and trading technologies businesses to Reuters product offerings would enable market participants to effect transactions and to reach each other more easily. Additionally, the acquisition of Bridge’s fixed income capabilities would enhance Reuters own products with comprehensive US data and analytics.
Prominent among assets which Reuters has ignored are the ADP retail equity information business, Telerate, Bridge Information Systems outside North America, BridgeNews, the Bridge Commodity business including the Commodity Research Bureau and Bridge’s interest in the Australian company Bridge/DFS. However, Reuters will be entitled to share the proceeds of any sale by Bridge of Telerate, or Bridge’s European or Asian operations.
The cash consideration for the Bridge assets covered by the Reuters bid is $275 million. No revenue figures exist for Bridge's individual business segments in 2000 but Reuters estimates the 2000 revenue for the Bridge businesses it would acquire was approximately $435 million (including revenues associated with the provision of soft-dollar services). Bridge indicates that it had a total net loss for all of its businesses, including those not covered by Reuters bid, of $106 million in 2000. Reuters estimates that the losses on the businesses being acquired are approximately $6 million per month currently. The bid covers net assets with an approximate book value of $90 million.
Reuters expects the impact of the acquisition on earnings per share (pre-goodwill) to be moderately dilutive during the process of integration which is likely to take around two years and involve integration costs of some $65 million. Reuters currently anticipates that this acquisition would be earnings enhancing in 2003.
The transaction is expected to close within four months. From 1 July Reuters will pay Bridge up to $10 million a month in order to fund continued operations of the businesses covered by the Reuters bid as well as Telerate’s US operations and various bankruptcy administrative costs. This will continue through to closing. Reuters is also offering financing to Bridge’s network provider Savvis Communications - up to $7.5 million a month - to help fund its operations from May until the transaction has closed.
If the transaction is not completed by the end of August both Reuters and Bridge have the ability to terminate the agreement, subject to an extension by Reuters of two months. Also, Reuters and Bridge will have reciprocal options to cause the purchase by Reuters of certain Bridge businesses included in Reuters bid – BTT (which includes Bridge Trading, Bridge Technologies and StockVal), EJV and Wall Street on Demand – for an aggregate purchase price of $120 million.
In addition to the $5 million deposit required for its original bid, Reuters will make a further deposit into escrow of $50 million, which will be paid to Bridge if the transaction is terminated or fails to close as a result of delays from regulatory review. However, the deposit will be repayable to Reuters from the proceeds of any subsequent sale of Bridge assets, other than Bridge’s interests in Bridge/DFS and Savvis, after Bridge has realised proceeds from the options described above and an additional $25 million. Reuters will also have an option to purchase Bridge’s 48% interest in Savvis until three months after closing at the greater of $2.50 per share or the average price during the preceding five trading days.
In addition to Bridge board approval, and bankruptcy court approval, the Reuters bid is subject to agreement on key terms of a new network services contract with Savvis, and to finalising definitive transaction documents with Bridge prior to the 3 May court hearing.
In a joint statement Peter Job, Reuters chief executive, and Tom Glocer, Reuters chief executive designate, said: “Our goal for this acquisition is simple: turn these Bridge assets around and provide real benefits to customers. We have already received support from several major customers who believe the deal is in their best interests. This is a significant step for our US business.
“Bridge’s core US equities information business has a strong base among institutional investors, an area in which Reuters has traditionally been under-represented and where there are a variety of strong competitors. As a result of the acquisition, Reuters will be able to offer clients a fuller complement of news and data products and link Reuters international and sell-side equities client base to the US buy-side, building a cohesive global financial community. Along with Bridge’s assets we are counting on a great deal of talent coming with us to complement our own strong staff.”