Back in June, we discussed Canada's Thomson
If you recall, back in June, I pointed out that Thomson Media made $164 million in sales in 2003, giving the unit a price-to-sales ratio of roughly 1.2 at the then-whispered sales price of $200 million. With the unit finally selling for $350 million, that brings its P/S up to 2.1. Of course, since June, Thomson itself has increased markedly in value and now commands a P/S of nearly 3.0 -- meaning that despite almost doubling, the media unit's sales price still represents a considerable discount from the valuation accorded Thomson as a whole.
The reason for the discount today is the same as it was four months ago: Burdened with a considerably "heavier" business model than is afforded by electronic publishing, Thomson Media is less than half as profitable (on an operating profit basis) as the rest of Thomson. That being the case, it's only logical that the unit should command a depressed valuation in comparison with Thomson as a whole.
It's also worth keeping in mind that Thomson has been trying to unload Thomson Media for nearly four years. The fact that the sale is going through is the real success to focus on here -- not the price on the sales contract. And once the sale closes, as it's scheduled to do before the end of the year, Thomson will be more than ever known as an "electronic publisher" (with the notable exceptions of its hard-copy textbooks and reference guides). Its balance sheet will look healthier, and its business model will become lighter and more scalable than ever before. For all these reasons, Thomson shareholders should be smiling today.
For more Foolish news and commentary on Thomson, read:
- Reed Elsevier's Fine Print
- Publishers Dueling for No. 1
- Thomson's Patently Good Buy
- Thomson's Book Fair
Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.