10/19/11

Could Thomson Reuters Be In Trouble?

Photo [cc] noazmadrid
One might think that the mighty Thomson Reuters (TRI) empire, with its $23 Billion market cap would be a safe place to park your money in a faltering economy. However, David Sterman, analyst for Street Authority, has placed TRI on a list of "12 Companies that Could Go Bankrupt Very Soon." In searching for companies with large loan obligations, Sterman says he "added Canadian media firm Thomson Reuters (NYSE: TRI) to the mix [because] (its weak balance sheet is just above that threshold.)"

Sterman points out that another dip in the economy could cause lenders to pull back on their lending to TRI, and that would put a strain on TRI's weak balance sheet:
Right now, Thomson Reuters carries a hefty, but manageable, $7.5 billion in debt. This shouldn't be a problem, as noted by EBIT coverage of about 8 (which means Thomson Reuters' quarterly cash flow is eight times higher than its interest payments). But what if the economy stumbles and demand for the company's professional-grade subscription services starts to slump? EBIT coverage would quickly shrink, forcing the company to meet with lenders to make sure Thomson Reuters doesn't run out of cash. This scenario is quite unlikely in the next quarter or two, but bears close scrutiny in a worsening economic environment.
The rumblings of potential problems in the mega-media firm became apparent back in July when CEO Tom Glocer was told by the Thomson family that TRI needed a further restructuring plan than the one Glocer implemented this Summer.

Why is Thomson Reuters being listed as a company in trouble? It's a reason that many of you will rejoice in hearing — Competition.

Initially, the competition was coming from the financial side of the TRI universe. Smaller companies like Morningstar, and FactSet, as well as established companies like Bloomberg are keeping TRI's major financial platform, Eikon, from hitting expectations. Smaller companies are just not seeing the value behind the high-priced platform offered by TRI.

Now, think about TRI's well established legal division (as well as mega-profitable.) If the Bloomberg/BNA merger proves to be actual competition and starts cutting market share… then Sterman's scenario suddenly looks very possible. The boom-times of the consolidation within the publishing industry may be suddenly looking very much like a "bubble" for TRI if the competition (which also gobbled up smaller fish in the publishing market – see Jean O'Grady's merger post) can start moving TRI customers over to its products.

For investors, Sterman suggests that it is time to "consider selling them now, because all of them [TRI included] could tumble in a hurry." As for those of us who are customers of TRI, it might be time to look at how stable a product they really are, and start looking at what potential alternatives are available to the TRI stable of products.

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5 comments:

Anonymous said...

It would be interesting to compare the same EBIT basis points for the (parents of) other legal publishers. At any rate, if Thomson Reuters runs into financial problems, it won't be because the Legal Division has failed to produce the golden eggs. According to the latest information (http://www.sec.gov/Archives/edgar/data/1075124/000114036111039034/ex99_1.htm), the Legal Division yielded an operating profit of almost 26% for the first 6 months of June. The Legal Division represents about 40% of the overall legal publishing market in the U.S.. The other "competitors" represent another 45-50% of this market. These facts do not encourage hope of competition in the overall market. The Bloomberg-BNA venture focuses on a submarket specialization, and does not "compete" with TR-Legal in the overall market.

Anonymous said...

It Would be interesting to know how other competitors of ThomsonReuters are prepared to face the economic slump when gaint like ThomsonReuters is strugling(or atleast what this article meant)

Anonymous said...

What about Lexis? Does pretty much everything one would want WL to do, but way cheaper.

I'm thinking more and more biglaw partners are going to dump WL for LX as they continue to look harder at costs. They gots vacation homes & vacations to pay for.

Greg Lambert said...

I think there may be a number of people that disagree about Lexis being way cheaper or doing everything that WL does (go ask your litigation attorneys to drop WL and go only with LX and see what type of reaction you get.)

If biglaw partners only worried about their vacation homes, then they would have dumped WL or LX for a Fastcase or Casemaker long ago.

Anonymous said...

I consulted for TR. The company hemorrages money and its IT Division is the most poorly managed I have seen in over 25 years in the field.

 

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