By now, you've all heard the news: Two of the biggest names in financial media are merging, as Thomson (NYSE:TOC) buys Reuters (NASDAQ:RTRSY).
I'm of two minds on the merger. From the perspective of a Thomson shareholder (which I'm not), I'd argue the merger is a lousy idea. Just look at the numbers (based on the estimated buyout price of $17.2 billion):
|
Thomson |
Reuters | |
|---|---|---|
|
Price-to-earnings |
22.7 |
29.6 |
|
Price-to-sales |
4.0 |
3.4 |
|
Price-to-book |
2.6 |
58.1 |
|
Profit margin |
17.7% |
11.9% |
From every perspective save price-to-sales, Thomson looks to be overpaying. Based on P/E alone, Thomson seems to think that Reuters is a 30% more valuable operation than Thomson proper. (Don't even get me started on the divergence in book values.) Thomson itself earns nearly 50% more from each dollar of revenue it brings in than Reuters does.
And yet...
But hey, I don't own Thomson stock. From the vantage point of pure self-interest, I'm all in favor of the merger, because it makes my life as an individual investor easier.
Sure, I know that when you reduce competition in the marketplace -- especially in the media market -- you risk losing alternative voices, and reducing the number of viewpoints available for investors to ponder. But this is the age of blogs & Bloomberg, and of rival media providers like TheStreet.com (NASDAQ:TSCM), Standard & Poor's, Dow Jones (NYSE:DJ), News Corp. (NYSE:NWS) -- and yes, the Fool itself. In such an environment, I don't think we stand to lose much if Reuters gets subsumed into Thomson and stops running such scintillating commentary as:
May 14 (Reuters) - LIFEWAY FOODS INC. (LWAY.O: Quote, Profile , Research) (in $) Latest Yr-ago qtr EPS (diluted) 0.07 0.05 Net (thousands) 1,135.3 894.7 Sales (million) 9.0 6.0 Reuters Estimates: EPS $0.03 (one analyst), revenue $9.0 million (one analyst). (Reporting by Nachiket Kelkar in Bangalore)
Life gets simpler
By combining the No. 2 and No. 3 financial information providers into a new No. 1 (displacing Bloomberg from that slot), I think the merger makes the world simpler, not just more simplistic. Pre-merger, it was common to see Thomson poll analysts and come up with one "consensus" number for a company's projected earnings, while Reuters polled the same analysts but came up with another. Post-merger, one company -- Thomson -- can do the math, and tell us a single "consensus."
Granted, the analysts will continue to be wrong more often than right. But at least we'll all be able to agree on what the wrong number actually was.
Fool contributor Rich Smith owns shares of TheStreet.com. The Fool's disclosure policy is merger-proof.
