What's the Hold-up?

One of the most common questions that we're asked is: "What's happening with the Reuters-Telerate deal?" From what we hear, not much.

Obviously, neither Reuters nor Telerate are talking. In fact, neither will admit that there is any deal in the works. But multiple sources have confirmed that the two vendors have been in talks for months, negotiating an agreement in which Reuters will buy out One Equity Partners' stake in Telerate.

However, it appears that progress remains slow. Originally, talks were held up by squabbles over price. OEP had hoped to recoup its investment in Telerate, which is thought to be around $250 million. Reuters managed to bargain OEP down to about $175 million to $185 million, and perhaps even lower than that (one source put the current figure at $115 million).

Of course, no matter what the price ends up at, we may never know the true terms. Even if the price is disclosed, it could still be misleading. For instance, what if Reuters agrees to move 20 percent of its clients off Radianz and onto Savvis? That could add a lot of value for OEP, which backed Telerate's $200 million agreement with Savvis back in 2001 (Trading Technology Week, Oct. 29, 2001).

Reuters cannily recognized that the months of negotiation would only add to the uncertainty surrounding Telerate's status in the market. That, in turn, not only reduced whatever competitive threat Telerate still posed but also decreased the value of the company. Thus, OEP would be willing to accept a lower price.

But even though Reuters got the price down, its board is still not satisfied that it is right. After all, while Telerate had revenues of $267 million in 2003 (according to IMD Reference), it's unlikely that it will hit those heights again. In addition, Reuters seems more interested in migrating whatever clients remain to its own products. So growing the revenue stream from Telerate's products is not a major concern, especially as some clients are thought to have bought them at a much lower price point than many of Reuters' offerings. Of course, that then presents Reuters with the problem of luring these customers over to its own products without losing money on the deal.

But there's another problem as well. Telerate has a network of vendors that redistribute its products and data. OEP is reportedly insisting that Reuters pay off these distributors, while Reuters argues that OEP should. While some distributors are happy to make a deal, others aren't.

On a related note, Telerate's relationship with Japanese vendor Quick is another sticking point. They have a three-year-old deal in which Quick redistributes Telerate's data in Japan and maintains its products and services (IMD, Oct. 15, 2001). Given Quick's dominance in the Japanese market, duplicating that agreement will be critical for Reuters.

After all, Japan is an important market that Reuters has had trouble conquering in the past. But there are several complications. First, Reuters has its own redistribution deal with Jiji Press, a major competitor to Quick (IMD, Aug. 18, 2003). In addition, Quick has a relationship with Nomura Research Institute, a rival to Daiwa Institute for Research, which in turn has a relationship with Reuters. And just to top things off: Quick was hit hard by the introduction of Reuters First, making the Japanese vendor even less likely to see Reuters in a favorable light.

No wonder that things have gotten complicated. Sources say the deal is now likely to close by Christmas—assuming no other roadblocks spring up.

Samara Zwanger