Shares of Thomson Reuters are trading up even though the financial information company reported disappointing earnings. The stock is rallying following an earlier sell-off. Revenue was $3.13 billion, a 73% rise but short of the $3.32 billion analysts surveyed by Bloomberg News expected. The results benefited from the merger. Earnings were $172 million, or 22 cents per share, down from $375 million, or 58 cents per share a year earlier.
Chief Executive Tom Glocer told reporters that financial services markets "are likely to remain challenging through at least the end of the year." That means that big clients are going to be asking for big discounts. Bloomberg, my former employer and the company's biggest rival, has usually been able to resist this temptation.
MOST NOTEWORTHY: Garmin, Thomson Reuters and Heritage-Crystal Clean were today's noteworthy initiations:
Garmin (NASDAQ: GRMN) was initiated with a Neutral rating at JP Morgan. The firm sees risk to 2008 Street estimates given the consumer slowdown in the U.S. and potential ASP and margin pressure as channel inventory is worked down.
Morgan Stanley assumed Thomson Reuters (NASDAQ: TRIN) with an Underweight rating and expects revenue growth in the company's financial business to slow sharply into 2009.
William Blair believes Heritage-Crystal Clean (NASDAQ: HCCI) has the opportunity to gain market share over the next several years as a result of its differentiated parts-cleaning programs, strong sales organization, and experienced management team. Shares were assumed with an Outperform rating.
OTHER INITIATIONS:
Lehman initiated Dell (NASDAQ: DELL) and Sun Microsystems (NASDAQ: JAVA) with Equal Weight ratings and targets of $20 and $17 and Apple (NASDAQ: AAPL), IBM Corp (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) with Overweight ratings and targets of $195, $144 and $59, respectively.
Pacific Growth started Spectranetics (NASDAQ: SPNC) with a Neutral rating.
Merrill reinstated Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM) and Hess Corp (NYSE: HES) with Buy ratings and price targets of $110, $105 and $125, respectively.
In a step toward expanding its reach into China, UCBH Holdings Inc (NASDAQ: UCBH) has acquired a full stake in Shanghai-based Business Development Bank in a deal valued at $205M, the Wall Street Journal reported.
According to "people familiar with the plan," Amgen Inc. (NASDAQ: AMGN) may sell its Japanese unit in an effort to help cut global costs due to a slump in sales and lower earnings forecast, Bloomberg reported.
Next year Nestle USA will sell Jamba Inc's (NASDAQ: JMBA) Jamba Juice at stores in eight states in the western U.S., according to the Wall Street Journal.
Last May Canadian information provider The Thomson Corporation (NYSE: TOC) bought Reuters Group Plc (NASDAQ: RTRSY) for GBP8.7B. While the deal was beneficial to Reuters, the credit crunch could have a severe impact on its bottom line over the next few years, the Wall Street Journal's "Heard on the Street" said.
Jeffrey Zucker, General Electric Company's (NYSE: GE) NBC Universal media unit would be interested in DreamWorks SKG if it were to become available, Bloomberg reported.
CNN Worldwide, a part of the Time Warner Inc. (NYSE:TWX) franchise, is expanding its staff of correspondents by 10% as it looks to increase its original content. The investment is said to be under $10 million and will add about 16 correspondents to its staff of 150.
About two months ago, CNN announced it was abandoning the relationship with Reuters Group PLC (NASDAQ:RTRSY) and would instead bolster its own news capabilities. The idea is to capture more advertising by owning the content as the content can simultaneously be pushed out over multiple distribution platforms.
What is interesting here, is that the focus is in the United Arab Emirates, where CNN operates CNN.com Arabic. It will use some of the investment for a digital production unit in London, as well as to increase its staff in Hong Kong. Mexico City and Johannesburg. Additional staff, and news operations are being planned in Belgium, Poland, India, Afghanistan, Nigeria, Kenya, Malaysia, the Philippines, and Vietnam.
Reuters (NASDAQ:RTRSY) has a blog section at the bottom of most business stories at Reuters.com. It is called Business Blog Posts, and it is powered by Blogburst. Blogburst is part of blog syndication service Pluck. And, Reuters is one of Pluck's owners.
Complicated? Yes.
The business blogs that Reuters runs are mostly small, one-person operations like Phil's Stock World and Captain Currency. Some, like The Kirk Report and Bill Cara, are well regarded. But, Reuters does them a disservice. It keeps the traffic for their content when it runs on Reuters.com. So, Reuters gets the ad revenue on those pages. The bloggers get their names on Reuters, and a link back to their sites, which is probably rarely used.
It is interesting to note that none of the big business blog sites like SeekingAlpha or Ticker Sense run in the Reuters program. They understand that the deal is good for Reuters and bad for the blogs. They aren't prepared to let Reuters compete with them for eyeballs using their own blog content.
It is a shame that Reuters has handled bloggers this way. Many other media outlets like WSJ.com and TheStreet.com comment on blogs but send traffic to the bloggers. Reuters has decided not to give the little guy a leg up.
Douglas A. McIntyre is a partner at 24/7 Wall St. which was approached about the Reuters program and turned the company down.
MasTec Incorporated (NYSE: MTZ) was upgraded to Buy from Accumulate at Think Equity and to Buy from Hold at SMH Capital on valuation following yesterday's sell-off.
JP Morgan upgraded shares of Cognos Incorporated (NASDAQ: COGN) to Overweight from Neutral citing solid end demand, expanded sales capacity, indications that C8 adoption should see an uptick, and the Applix Inc (NASDAQ: APLX) acquisition.
Forest Laboratories Inc (NYSE: FRX) was upgraded to Buy from Hold at Jefferies, as the firm believes Forest's victory in the Lexapro patent case eliminates a major overhang and returns the focus to the company's pipeline.
Lehman upgraded shares of Reuters Group (NASDAQ: RTRSY) to Overweight from Equal Weight to reflect benefits from the company's merger with Thomson Corporation (NYSE: TOC).
Thornburg Mortgage (NYSE: TMA) was upgraded to Sector Perform from Underperform at RBC Capital Markets.
CIBC World Markets upgraded EDO Corporation (NYSE: EDO) to Sector Outperformer from Sector Performer.
Bernstein upgraded shares of Rio Tinto (NYSE: RTP) to Outperform from Market Perform and shares of Anglo American (NASDAQ: AAUK) to Market Perform from Underperform.
MOST NOTEWORTHY: Lowe's (LOW), Cooper Tire & Rubber (CTB), Campbell Soup (CPB), Reuters Group (RTRSY) and Netease.com (NTES) were today's noteworthy upgrades:
JP Morgan upgraded Lowe's (NYSE: LOW) to Overweight from Neutral based on improved risk/return and conservative near-term estimates. UBS upgraded Lowe's to Buy from sell on valuation.
Cooper Tire & Rubber (NYSE: CTB) was upgraded to Buy from Sell, as the firm thinks Copper is benefiting from surging demand for tires in Asia and considers the recent weakness a buying opportunity.
UBS upgraded shares of Campbell Soup (NYSE: CPB) to Buy from Neutral, citing expected growth acceleration, productivity savings, and attractive valuation.
Deutsche Bank is positive on the Thomson (TOC)-Reuters combination and expected synergies, upgrading Reuters Group (NASDAQ: RTRSY) to Buy from Hold.
Netease.com (NASDAQ: NTES) was upgraded to Positive from Neutral at Susquehanna based on valuation and checks that indicate better than expected performance of Westward Journey Online III...
In a sign of the increasing importance of high-end financial blogs, Reuters Group Plc (NASDAQ: RTRSY) is starting a new network of the sites. Or, it could be that the Reuters business development people have down time because of its upcoming purchase by Thomson Corp. (NYSE: TOC).
The offer that Reuters is making to a number of high-end blogs is that it will link to the participating sites from Reuters.com, offer free access to selected Reuters Headlines (RSS or Headline Wizard) and Reuters Video Player to publish Reuters News, and get 30% of an advertising program that the big financial services company will manage.
In return, each blog agrees to execute contracts with comScore and NetRatings to assign its traffic to Reuters.com. NetRatings ranks Reuters.com as the No.7 financial website with unique visitors of 6.1 million in May.
Reuters may be trying to match blog initiatives at media outlets including FT.com, WSJ.com, and AOL.com.
Either Reuters has a very high regard for financial blogs or it needs to pump up its audience ratings.
Disclosure: 24/7 Wall St. was approached by Reuters about this opportunity.
Douglas A. McIntyre is a principal at 24/7 Wall St.
The Bancroft family, which controls the voting block of stock in Dow Jones (NYSE: DJ) has agreed to meet with News Corp (NYSE: NWS) to discuss its $5 billion offer. Earlier in the week, one of the largest Dow Jones shareholders, T Rowe Price, suggested that the company take the offer. The institutional investing firm reasoned that company management did not have a plan to get shares up to $60, the value of Murdoch's offer.
Outsiders might view the change of heart on the part of the Bancrofts as simply an acknowledgment of their duty to the company's other shareholders.
But, it can also be seen in another light, Shares in Dow Jones have not done well since 2001. T Rowe Price is right. The management has no viable plan to substantially increase shareholder value, and it has not had one at any time in the recent past.
As print advertising and circulation rose, Dow Jones did launch online versions of its products. The Dow Jones Newswires have done well, but still face increasingly difficult competition from Reuters (NASDAQ: RTRSY) and Bloomberg. The company did not launch any new business that might transform its financials or make any acquisitions that might change the face of the company.
The British newspaper, The Independent, reports that Reuters is a heart beat from being sold to Thomson (NYSE: TOC). According to its report, the "Reuters Founders Share Company, the trust that acts as guardian to the editorial independence of Reuters Group Plc" is prepared to approve the deal. Reuters has been independent since it was founded in 1850.
Thomson's bid sent the Reuters (NYSE: RTRSY) ADRs from below $60 to over $77. While the premium is nowhere near the one that News Corp (NYSE: NWS) has offered for Dow Jones (NYSE: DJ), Thomson is family controlled, and the Reuters CEO would run the combined company.
A combined Thomson/Reuters would have a share of the financial news delivery business that would only be matched by privately-held Bloomberg.
The merger of the two financial news and information giants could put Dow Jones in a bit of a bind. Its revenue would be dwarfed by larger competitors, and a rejection of the News Corp. offer could end up looking short-sighted.
But Dow Jones's management has made mistakes before.
The Wall Street Journal (subscription required) reported that it was March 29, not the week of April 9 that News Corporation's (NYSE: NWS) Rupert Murdoch began talks with Dow Jones and Company Inc (NYSE: DJ), as securities regulators sort out the timing of events as insider trading allegations have surfaced in connection with News Corp.'s $5B offer for Dow Jones.
According to people familiar with the matter, the SEC is investigating claims made by Fairfax Financial Holdings Limited (NYSE: FFH) against a group of hedge funds, the Financial Times (subscription required) reported.
OTHER PAPERS:
Clear Channel Communications Inc's (NYSE: CCU) shares have risen, Barron's Online notes, to near $38 on talk that Fidelity Investments will reverse its stance and back a buyout led by Thomas H. Lee and Bain Capital.
WEBSITES:
Globe and Mail reported that Russian billionaire and automotive entrepreneur Oleg Deripaska's companies are going to buy 20 million shares of Canadian auto parts company Magna International Inc (NYSE: MGA) for $1.54B.
MOST NOTEWORTHY: Today's most noteworthy downgrades included Armor Holdings, Inc (AH), Alcan Inc (AL), Advance Auto Parts, Inc (AAP) and Reuters Group PLC (RTRSY):
Armor Holdings Inc (NYSE: AH) was downgraded to Neutral from Overweight at JP Morgan based on the news that the company will be sold to BAE Systems PLC (BAESY) for $88 a share in cash. The firm expects the deal to close with no higher offers. Bear Stearns cut Armor Holdings to Peer Perform from Outperform and Friedman Billings cut shares of the vehicle armorer to Market Perform from Outperform.
Alcan Inc (NYSE: AL) was cut to Neutral from Buy at Bank of America and DA Davidson following the Alcoa (AA) bid.
Baird cut Advance Auto Parts (NYSE: AAP) to Neutral from Outperform following CEO Michael Coppola's resignation. Kevin Dann downgraded Advance to Hold from Buy to reflect an increased level of uncertainty following Mr. Coppola's departure.
Lehman Brothers downgraded Reuters Group (NASDAQ: RTRSY) to Equal Weight from Overweight pending further information on the Thompson Corp (TOC) bid; Credit Suisse cut shares to Neutral from Outperform and Deutsche Bank cut shares to Hold from Buy.
OTHER DOWNGRADES:
Matrix downgraded UST Inc (NYSE: UST) to Sell from Hold.
Watching the flurry of information industry merger announcements in the last week or so, I am struck by a point that analysts seem to be missing -- it's important to know what kinds of information people are willing to pay for. In all the chatter about News Corp.'s (NYSE: NWS) bid for Dow Jones & Co. (NYSE: DJ), Microsoft Corp.'s (NASDAQ: MSFT) discussions with Yahoo Inc. (NASDAQ: YHOO), and The Thomson Corp.'s (NYSE: TOC) proposed acquisition of Reuters PLC (ADR) (NYSE: RTRSY), the important point that's been lost is that people will pay up for some kinds of information and expect other types to be free.
I first began thinking about this in 1984 when I worked on a consulting project for the New York Stock Exchange on the threat it faced from electronic stock quote providers. In 1986, I published an article based on this, Strategic Developments in Investment Information. The point of that article that's still relevant today is that people will pay good money for information if it satisfies three tests:
It's proprietary;
It helps minimize the risk associated with a big investment; and
The price of the information is a small proportion of that investment.
What relevance does this have for all these information industry mergers?
Shares of Reuters are skyrocketing on reports of a $15 billion takeover bid from an unidentified suitor that can be blocked by a single golden share could block the bid.
And like DJ, Reuters has a quirky ownership structure under which no shareholder may own 15% or more of Reuters shares and a single golden share held by The Reuters Founder Share can block a hostile bid. The Reuters Founder Share Co is run by 15 trustees, charged with ensuring the "independence, impartiality, integrity and freedom from bias" of the global news organization.
So once again the interests of public shareholders of media companies are being thwarted by special insider interests. I think it's time to end this quaint relic of the 19th century.
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