Thomson Corp and Reuters Group Plc set a goal of US$500 million a year in cost reductions from their US$17.2 billion combination. Investors said the merged company can save more.
"It's not an overly ambitious target," about 5 percent to 6 percent of the companies' US$11 billion in revenue, said Anthony de Larrinaga, an analyst at SG Securities in London.
Thomson agreed yesterday to buy London-based Reuters, making it the biggest financial news and information company, with 60,000 employees in more than 196 countries.
Thomson can cut jobs in sales and administration and sell real estate, chief executive officer Richard Harrington said in an interview.
Eliminating overlapping departments that compile earnings estimates and price securities will also decrease spending.
"Just these two things will get you a couple of hundred million, easy," said Paul Harris, a fund manager at Avenue Investment Management in Toronto, which oversees US$91 million.
Promised savings of US$500 million annually within three years of completing the union would equal about 8.5 percent of the companies' costs, said Simon Baker, an analyst at Credit Suisse in London.
Thomson-Reuters, as the new company will be called, would have to shed as many as 5,100 jobs if it cut 8.5 percent of its workforce, Baker said.
Harrington, 60, said he was optimistic savings could be achieved through minimal firings.
"We have not been specific whether there will be layoffs," he said. "Hopefully we're able to get enough growth and through normal attrition to have it be minimal."
In a memo to employees yesterday, Reuters chief executive officer Tom Glocer, 47, who will become CEO of Thomson-Reuters, also played down the prospect of firings.
"Much will be written in the media about job cuts and there will be some," Glocer said. "But far greater value will come from what we can do together."
Thomson, owner of the Westlaw legal database and TradeWeb bond-trading network, offered 691 pence (US$13.70) in cash and stock for each share of Reuters, the dominant service for trading currencies.
The UK company's stock traded at 624.5 pence at 8:52am in London, 9.6 percent below the offer on concern that US and European regulators could reject the transaction.
Thomson shares fell 1 cent to C$46.35 (US$) in Toronto.
The company is based in Toronto and much of its staff works in a headquarters building in Stamford, Connecticut.
Reuters stockholders will receive 352.5 pence in cash and 0.16 Thomson share for each share, the companies said in a statement. The acquisition won approval from the Reuters Founders Share Co, a board with special voting rights to protect the 156-year-old news service's independence and integrity.
The proposed cost savings could be worth 250 pence per share, said Jonathan Barrett, an analyst at Kaupthing Singer & Friedlander Capital Markets in London. Credit Suisse's Baker estimated the benefits Reuters and Thomson are proposing to be worth 191 pence per share.
Charles Peacock, an analyst at Seymour Pierce in London, said the planned cost savings would represent 119 pence per share of the merged company.
"There are clear economies of scale, raising the margins of Reuters up to the 29 percent that Thomson has achieved," he said.
Bloomberg LP, the closely held news and financial information company founded by New York City Mayor Michael Bloomberg, is the parent of Bloomberg News and competes with Reuters and Thomson in selling information and trading systems to the financial-services industry.
Combining with Reuters would lift Thomson's share of the financial data market to 34 percent from 11 percent, compared with Bloomberg's 33 percent share, figures from last year compiled by Inside Market Data, an industry newsletter, showed.
Thomson chairman David Thomson, a 49-year-old grandson of founder Roy Thomson, will be chairman.
Shares of Thomson-Reuters will be listed in Canada, the US and the UK.
Labor unions at Reuters have said they are concerned about potential job losses.
The unions, which represent 2,400 editorial staff, called on the Founders Share board to "closely scrutinize" the purchase.
The board was established in 1984, when Reuters first sold shares to the public.
"It's inevitable that there will be job cuts," said Barrett at Kaupthing Singer & Friedlander. "Reuters has proved it can deliver on cost savings, so they will probably achieve this," he said.
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