DBRS Comments on Thomson Reuters Exploring Strategic Options for its Intellectual Property & Science Division

DBRS Limited (DBRS) notes Thomson Reuters Corporation’s (Thomson Reuters or the Company) announcement that it is exploring strategic options for its Intellectual Property & Science (IP&S) unit and has retained financial advisors in advance of a potential divestiture.

Management has stated that, while the IP&S division contains growing and profitable businesses, the sale would allow Thomson Reuters to focus on its core business and prioritize investments in opportunities at the intersection of global commerce and regulation. The IP&S unit is the Company’s smallest, accounting for approximately 8% and 9% of revenues and adjusted EBITDA, respectively, over the last 12 months ended Q3 2015.

In the event of a sale, the Company has stated that it plans to use net proceeds for general corporate purposes, including investing in its core business, repaying debt and accelerating share repurchases.

DBRS believes that a potential divesture of the IP&S business would be credit risk neutral and would not affect the ratings. In its July 9, 2015, confirmation of Thomson Reuters’ BBB (high) ratings, DBRS stated that the Company was expected to maintain financial leverage within its guidelines of net debt-to-EBITDA of up to 2.5 times.

DBRS believes that the magnitude of debt repayment required to maintain the leverage target in light of any divested EBITDA would not be a substantial proportion of the financial consideration that could be expected from such a transaction. Even without an immediate repayment of debt, the Company should be able to return to its stated financial leverage target based on growth in operating income and application of free cash flow toward net debt in approximately one year. As such, DBRS assesses that Thomson Reuters maintains the ability and believes that it has the willingness to maintain its stated financial policy guideline.

While the timing of a possible transaction remains uncertain, DBRS will note the details of any potential transaction(s) to be sure that it is generally consistent with the current analysis.

Thomson Reuters’ ratings continue to reflect the Company’s well-entrenched market position, the diverse nature of its customer base and its strong free cash flow-generating capacity and also consider intensifying competition, the need for constant innovation and the risks associated with the Company’s ongoing acquisitions and divestitures.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Publishing Industry, which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.