Data and analytics providers IHS Inc and Markit Ltd have agreed to combine in an all-stock transaction that is to take Colorado-based IHS to London.
IHS’ shareholders are to own 57 percent of the combined company — to be known as IHS Markit — and Markit’s shareholders are to own the remaining 43 percent, according to a news release on Monday.
IHS Markit is to have more than 50,000 customers.
“This transformational merger brings together two information-rich companies to create a powerful provider of unique business intelligence, data and analytics to a broad and complementary customer base,” IHS chairman and chief executive Jerre Stead said in the statement. “IHS Markit and its shareholders will benefit from enhanced product innovation to deliver strong returns across economic cycles.”
Technically, the deal is a tax inversion, where a US company merges with a foreign one to lower its tax bill. However, IHS’ tax rate might not change much; it was about 20.5 percent for the year through November last year, and the combined company is expecting a tax rate in the low to mid-20 percent range, according to the statement.
IHS provides research and analytics to businesses and customers in the energy, transportation and technology, media and telecommunications industries. Challenges facing the energy sector, as declines in commodities prices have caused distress and bankruptcies, cut into IHS’ revenue last year.
Non-subscription revenue declined 27 percent, according to the company’s most recent filing. Merging with Markit, which focuses largely on the financial industry, would help IHS diversify away from energy.
IHS was founded in 1959 as Information Handling Services to provide information for aerospace engineers through microfilm databases. The company grew and diversified through a series of acquisitions to become the largest commercial producer of microfilm products by 1988.
Markit was founded 13 years ago to provide prices for credit default swaps and it quickly garnered investments from financial firms, such as JPMorgan Chase & Co and Bank of America.
The company provides pricing information on many different types of securities, as well as processes derivatives, foreign exchange and syndicated loans. Markit also creates software to help customers calculate risk.
Shareholders in IHS, which has its headquarters in Englewood, Colorado, are to receive 3.5566 shares of IHS Markit for each share of common stock they own. Based on closing prices on Friday last week, that implies US$31.13 per share of Markit, a 5.6 percent premium.
The acquisition values Markit at US$5.5 billion, based on 176.8 million shares outstanding.
“The combination will enhance cash flow and enable stronger returns of capital to shareholders,” Uggla said in the statement.
The companies expect to have US$125 million in cost reductions by the end of 2019, through areas such as technology and real estate.
The transaction is to be immediately accretive to earnings and is expected to close during the second half of the year, the companies said.
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