DBRS Comments on Thomson Reuters Definitive Agreement to Sell Intellectual Property & Science Division

DBRS Limited (DBRS) notes that Thomson Reuters Corporation (Thomson Reuters or the Company; rated BBB (high) with a Stable trend by DBRS) announced today that it has entered into a definitive agreement to sell its Intellectual Property & Science (IP&S) unit to two private equity funds for $3.55 billion in cash. The sale is subject to regulatory approval and is expected to close within the next few months.

IP&S was the Company’s smallest division, accounting for approximately $1.0 billion, or 8%, of consolidated revenues and $313 million, or 9%, of adjusted EBITDA in 2015. The Company has stated plans to use roughly $1 billion of the net proceeds from the divestiture to repurchase shares (as part of its ongoing $1.5 billion share buy-back program); the remainder will be used to repay debt (primarily commercial paper) and invest in its core business.

On November 12, 2015, DBRS noted the Company’s intention to sell its IP&S business, as management sought to focus on its core business and prioritize investments in opportunities at the intersection of global commerce and regulation. At the time, DBRS stated that it believed that a potential divesture of the IP&S business would be credit risk neutral and would not affect the ratings. The Company maintains a financial leverage target of net debt-to-EBITDA of up to 2.5 times.

Over the last 12-month period, financial leverage was slightly above the Company’s leverage target. However, DBRS believes that the Company should be able to return to its stated financial leverage target over the near term based on growth in operating income and application of free cash flow toward net debt. Additionally, the suggested allocation of proceeds from the IP&S divestiture continues to support DBRS’s view that Thomson Reuters has the ability and willingness to achieve and maintain its stated financial policy guideline.

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. The ratings also take into account intensifying competition, the need for constant innovation and the risks associated with the Company’s ongoing acquisitions and divestitures and transformation strategy.

DBRS will release a detailed report on Thomson Reuters in the coming weeks that provides further analytical detail.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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

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