• by Erik Sass  @eriksass1, May 16, 2007

The Thomson Corporation will buy Reuters Group PLC for $17.2 billion, the companies announced Tuesday, in a deal that will create the world's largest news and market-data organization. The deal received approval from the Reuters Founders Share Company, a special custodian council empowered to veto deals that it believes endanger the company's mission. It must still clear regulatory hurdles, including antitrust statutes. The new company will be headed by Reuters' chief executive, Tom Glocer.

Provided there are no layoffs, the deal will combine Reuters' roughly 15,500 employees with Thomson Financial's 9,300. (Thomson Corp. has 32,000 total employees, working in divisions covering legal, health care, scientific and tax and accounting news.) Thomson raised some of the funds for the deal with last week's sale of its educational division, including its textbook publishing business, for $7.8 billion.

The buy comes after several strong years at both companies.

In 2006, Reuters' revenue rose 8% to a total $6.6 billion, as profit rose 7% to $1.3 billion on a year-over-year basis. In 2006, Thomson Financial saw revenue rise 6% to $2 billion, while profit increased 13% to $379 million. Together, the companies will control roughly 34% of the news and information market, edging out competitor Bloomberg LP.

The upsides: Thomson strengthens its financial-reporting resources, and Reuters gets exposure in Thomson's other specialty areas. Plus, the companies expect to save about $500 million a year through efficiencies resulting from the deal--again, no word on layoffs.

Both companies' bread-and-butter is still subscription revenue for their business and professional-information products, according to Patrick Quinn, president and founder of PQ Media, which tracks various business information markets. But as price competition with Bloomberg heats up, they may begin incorporating advertising to offset subscription costs. All the elements are there, Quinn noted--including desirable audiences of engaged, well-heeled professionals, high potential for contextual targeting and the digitization of content delivery.

"They really set the tone for leveraging static content into the digital, interactive format over the last decade," Quinn recalled. "As the overall B-to-B information service categories continue to overlap more and more--from digital content to magazines to events and trade shows--there are going to be more opportunities for value-added marketing programs, including targeted advertising."

Quinn says we're not seeing that at the moment, because the companies don't need the extra revenue--they currently get a premium price from their institutional subscribers. "But if price becomes more of a challenge going forward," he says, "I could see them adding that to the model."