This post is taken from an email I sent to a Reuters employee who mentioned that folks were concerned that we sold Instinet too cheaply (because it has been re-sold 18 months after our agreement at a high price) and that we bailed pit of Factiva too early.
Here’s my response…
Thanks for your note. I appreciate hearing the real things people are saying and it gives me a chance to address items which I just assume (wrongly) that people get. I have a blog in beta (actually my second after one I abandoned two years ago) which I am going to use to address things like this informally.
First Factiva. Far from a short term view my thinking was actually long-term. Having watched Reuters build up huge value in Instinet TIBCO the Greenhouse Fund and other assets and then sit on them to prop up earnings while the core business was dying I did not want to fall into the same trap. In my view Factiva is a great service and I use it regularly; however with google and others beginning to get access to and aggregate via search the so-called ‘dark web’ the days of simple aggregation of print publications that formerly had no other sources of electronic revenues are over. Rather than wait for this to happen we got a very good price from DJ (13 x 2006 EBITDA) because they are very eager to reduce their reliance on purely print revenues (now going down from 70% to 60%). Finally as Bernard Baruch one said no one ever went hungry selling before the high. We are not traders we are operators finally focused on our core business which significantly outgrew competitors like Thomson in the 3Q (5.3% Reuters underlying vs 3% Thomson).
Much of the same logic applies to the Instinet case. We contracted to sell Instinet in March 2005 as part of a much larger strategic sale of the exchange business (INET) to Nasdaq and Lynch Jones to BONY. We retained two investment banks they ran a full and fair auction at a time when the equity markets were very weak and there was only one bidder – SilverLake. SilverLake actually bid to permit the big sale go through and would not have bid at all without participating in the Nasdaq purchase. They have now done very well and I am pleased for them (lest anyone doubt I am not an investor and have nothing personal to gain). Could we have not sold Instinet and run it ourselves? I doubt it. Remember Instinet was a public company of which we only owned 62% so this was not Reuters decision alone and it would have been a very weird AIM-like stub company if it had not been sold at the same time. Moreover we would have lost the management group so Reuters managers would have had to go into the business to run it . From my perspective we have been much better off having the full attention of Devin David and me on the core business during this key period of restarting growth. Finally going back to the theme of sitting on assets from above the value of reuters interest in Instinet looked at one point like it was going to go to zero. Market share had fallen below 10% the SEC was gunning for the firm nimble ECNs like Island and Arca had sprung up and Instinet was losing $2m per day. We worked like hell to engineer the Island acquisition put in place the right management team take cost out of the company and rationalize its products. This eventually allowed us to realize over $1bn from the investment and get on with transformation at Reuters. I am very proud of this record which not coincidentally is the subject of an HBR article coming out about the turn-around.
thanks again for writing – without the feedback I might assume that everyone knows the story.
regards
tom