Fast Forwarding at Reuters: Reuters Group Announces Losses, Buys Multex by Marydee Ojala

Reuters Group revenues were down by 8 percent, a figure heavily influenced by the 31 percent decline in revenues at Instinet, a unit 63 percent-owned by Reuters Group. The core Reuters business revenues declined by only 2 percent. Restructuring costs also contributed to the loss. Despite these dismal results, the company is keeping its 10 pence dividend. Even the promise of a dividend, however, did not boost the stock price, which is trading close to a yearlong low. Both S&P and Moody's are likely to cut their ratings on Reuters.

To stem its losses, Reuters has proposed a five point “accelerated strategy.” It is calling the strategy “Fast Forward,” causing one poster to a financial bulletin board to ask, rhetorically one assumes, if Reuters thinks it's in the VCR business.

The five points are:

• Investing in new content (this is where the Multex acquisition fits)
• Moving to a single product delivery system to lower costs and improve service
• Selling fewer but more tailored products to increase revenue
• Focusing on the company's core strengths of risk management, content management, and treasury products
• Reshaping its cost base

Finance director David Grigson, in explaining what's behind the figures, divides Reuters into four parts: the core business (which he stresses made a profit before the restructuring costs were factored in), Instinet, the restructuring costs, and asset write-downs on the balance sheets of both Reuters and Instinet.

Reuters is in a tough spot. Its major clientele is investment banks, which have been badly hit by the economy and by questions about the propriety of their analyst reports. Although Reuters began as a general news service, back in the 1800s, it became known for its concentration on business and financial news. In the mid-1990s, it adopted a "Reuters Everywhere" strategy to spread its information across many different platforms. In the August/September 1996 issue of Database, I called this the Reuters Hall of Mirrors, noting that their reflection was everywhere. This is still largely true, but is apparently not bringing in sufficient revenue to keep the company profitable.

There are bright spots. Grigson points to Factiva, a 50-50 joint venture with Dow Jones, as being profitable, “primarily through strong cost control.”

The purchase of Multex raises several questions. For one, why spend the money now to acquire the 94 percent of the company Reuters didn't already own? In such a down year, acquiring companies seems an incredible act of bravado. Then again, those of us who have followed Reuters over the years know that it's a company that has never been able to decide its role in the information industry.

Freelance journalist and industry observer Richard Poynder dubs it an “identity crisis,” noting that at various times Reuters has seen itself as a host, a database producer, a real-time information company, and one that sells historical data as well. The most recent strategy of focusing on the core business leads some of us to wonder what Reuters thinks its core business is. Vacillation over that hugely fundamental point has hampered Reuters for years.

Multex, itself a publicly traded company, has followed a similar “everywhere” strategy. Information from Multex can be found via almost 30 distribution partners, including Reuters’ archrival Bloomberg. It's also vended by Alacra, Bureau van Dijk, Factiva, Hoover’s, LexisNexis, OneSource, SmartMoney, TheStreet.com, and Yahoo!, among others. Multex has one version for individual investors and one for institutional investors.

Reuters wants to integrate the Multex information into its own platform as quickly as possible. Whether this will result in that data disappearing from other channels is not clear. Certainly it won't happen immediately, given contracts already in place.

Analyst opinion is split as to whether the $195 million Reuters is paying for Multex is too high. David Curle, lead analyst for Outsell, believes it a fair price. Others are not so sure. They look at the 16 times 2002 EBITDA (earnings before interest, tax, depreciation, and amortization) price and note that it's a 60 percent premium over Multex's closing stock price. Is it worth it to Reuters to acquire the Multex data at that price?

Multex's finances have risen and fallen as it rode the dot-com rollercoaster. It went public at $14 a share and once reached $70 a share. It is to be sold at $7.35 a share. Multex is still generating cash, and can be considered a genuine survivor of the dot-com crash, mainly because it had products that people wanted, delivered in a fashion that met market needs.

Reuters' CEO Tom Glocer notes that the acquisition of Multex: “substantially deepens our company information offering along with our news and pricing data. Second, it really makes real our play in the investment research area and third, the investor.com part of Multex will fold nicely into the reuters.com assets.”

The appeal of Multex to Reuters also lies in its independent analysis. With some 5 million research reports on almost 50,000 companies, Multex has a large database. Not part of an investment bank, not subject to the pressures analysts may encounter from their lending and stockbroker colleagues, Multex offers an alternative to discredited reports from investment banking firms. It provides consensus analysis similar to those from Thomson's First Call unit.

For information professionals, Reuters is an important news source. Multex has provided business and financial researchers with much-needed company and industry data. One hopes that Reuters will not integrate Multex so totally that it becomes unavailable through other avenues, and that Reuters will continue Multex's tradition of providing products aimed at a variety of markets.
 
 

Marydee Ojala is the editor of ONLINE and conference chair of the National Online conference. Her e-mail address is marydee@infotoday.com.

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