"On April 17, 2008, Thomson Corp. acquired Reuters Group, a 156-year-old news service company, for $17.2 billion and created a new financial information giant.

"With 50,000 employees and operating in almost 100 countries, the new combined corporation controls 30% of the North American and 38% of European financial information and data markets.

"In addition, the company provides extensive legal, regulatory, tax, science, and health care information services through its electronic networks. Last year revenues totaled US$13.4 billion and generated earnings of US$3.3 billion, equal to US$1.91 a share.

"The major news here was, of course, the friendly Reuters takeover. As one pundit pointed out, it was an old-fashioned merger designed to benefit both parties, not some desperate rescue package or consolidation.

"Perhaps surprisingly, there was almost no business overlap. Reuters was, to a large extent, a news organization. Thomson sold its last newspaper chain years ago. Nevertheless, the companies expect to save more than US$500 million per annum after three years through synergies.

"The important thing, though, is that TRI is in the right business. The days of lawyers, doctors, or pharmacists wading through piles of circulars to keep themselves up to date are long gone. Time is of the essence and they use on-line databases provided and updated by Thomson.

"It's a growth industry, not entirely recession-proof, but certainly shielded during the economic downturn. Even more lucrative are TRI's on-line services to the financial community, now being aggressively expanded into China and India.

"The company is fundamentally strong with almost $1 billion in cash on the balance sheet and a projected US$2 billion cash flow in 2009. The bonds are rated A-, an investment grade, by Standard & Poor's and Dominion Bond Rating Service.

"One question mark is the Thomson family's voting control, although in fairness this has never been a problem for the small shareholders. Indeed, some analysts think that this personal involvement bolsters corporate governance.

"Looking ahead, TRI is bound to be hurt this year by the downturn in investment activity as institutions and brokers retrench but a lot of its services are now essential to the professional community and provide a solid earnings base. At the same time, savings from the Reuters merger will continue to boost profit margins.

"All things considered and assuming that the recession is going to deepen, profit could dip to about $1.50 a share in 2009 but a recovery to the $2 range is likely in 2010.

"Given this, I am setting an initial target of $42 which, based on next year's forecast, is a 17 earnings multiple. To put that in perspective, Thomson's P/E has averaged more than 26 over the last 10 years.

"Further, given the company's healthy cash flow and light refunding requirements, we could see dividend increases."

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