Thomson, Reuters Results Please As Merger Looms

Second-quarter results at Reuters Group PLC (RTRSY) and Thomson Corp. (TOC) were better than analysts expected, with the momentum expected to continue through the balance of the year. The performance is an encouraging sign with the pending merger between the two giants of financial information and data.

Drew McReynolds, an analyst at RBC Capital Markets, said there is “increased confidence” the combined companies will be able to realize a promised US$500-million in cost reductions through data center consolidation and other rationalization. But caution remains, particularly given the risks associated with closing a deal that requires regulatory approval in several jurisdictions including Europe, the United States and Canada.

“We like the combination strategically but note that execution risk is high,” Goldman Sachs & Co. analyst Peter Appert said in a note to clients.

Another analyst who tracks Thomson said the full picture won’t emerge until it is determined whether the combined companies will have to divest certain assets in order to satisfy regulators. Tom Glocer, the chief executive of Reuters who will also run the combined companies, said Thursday he does not expect to have to sell any businesses to receive regulatory approval.

Thomson sold its Learning division, which produced text books and electronic information for teachers and students, to help fund the Reuters acquisition.

A combined Thomson-Reuters is likely to be more affected by business cycles than in the past, said Goldman’s Mr. Appert, because 60% of earnings will come from financial information.