The potential merger between financial data provider Thomson and news service Reuters moved a step closer Tuesday, as the companies provided details for a deal worth about 8.8 billion pounds ($17.6 billion).
Thomson would pay 352.52 pence a share in cash and swap 0.16 share of Thomson shares for each share of Reutesr. Based on Monday's close, the deal values Reuters at 697 pence a share ($14), about a 13% premium from Reuters' closing price.
The offer is about 42% higher than where Reuters' shares were trading on May 3, before the company confirmed it received a preliminary bid.
Shares of Reuters rose more than 4% to 643 pence in morning London trading. The gap between Reuters' current share price and the offer price is mainly due to uncertainty about where Thomson shares head when they start trading later Tuesday in Toronto, Alex De Groot, an analyst at Panmure Gordon, told CNBC Europe.
The new company would be called Thomson-Reuters and aim to create a global leader in the business-to-business information markets. Reuters CEO Tom Glocer would be chief executive of the combined company.
Woodbridge, the Thomson family holding company, would own 53% of Thomson-Reuters, while other Thomson shareholders would hold 23% and Reuters shareholders would own 24%.
Thomson confirmed Monday it approached Reuters' board about a possible takeover, but Thomson said the move "may or may not lead to an offer." The companies said Tuesday no deal would be concluded without the approval of the Reuters Founders Share Company, which as the ability to vote down any takeover proposal.
The combined company would also have a 'golden share' that could thwart takeovers to preserve the independence of the news service.
In addition, the deal would deliver more than $500 million in annual cost savings, expected to be achieved within three years, the companies said.
Thomson, Reuters and Bloomberg compete in providing data terminals to the world's major banks and brokerages. Reuters, which also has a general news service, was the market leader for many years, though it has steadily lost ground to Bloomberg.
By combining with Reuters, Thomson would rival Bloomberg in market share. An April report from Inside Market Data Reference said Bloomberg has 33% of the market share, with Reuters at 23% and Thomson at 11%.
Thomson, based in Stamford, Conn., has transformed itself in the last decade from an owner of newspapers and other print products. It has built up its legal information business, and is about to sell Thomson Learning, its book division for about $5 billion. The company has 32,000 employees and had sales in 2006 of $6.6 billion.
While Reuters is known internationally for its general news operation, that is just a small part of its business. Of the company's 2006 revenue of 2.57 billion pounds ($5.11 billion), only 170 million pounds ($338.3 million) came from the media segment - although its news is a key selling point for terminals as well.