May 11 (Bloomberg) -- Thomson Corp. agreed to sell its textbook and educational testing for $7.75 billion in cash to fund its $17.5 billion offer for Reuters Group Plc and create the biggest financial news and information company.
Apax Partners, a London-based buyout firm, and the Ontario Municipal Employees Retirement System agreed to buy Thomson Learning and Nelson Canada, Thomson said today in a statement.
The sale, which fetched more than analysts predicted, would fund almost all the planned cash portion of the offer for Reuters. Thomson, owner of the Westlaw legal database and TradeWeb bond-trading network, this week offered 8.77 billion pounds in cash and stock for London-based Reuters, a news organization founded 156 years ago by Paul Julius Reuter that now spans 131 countries.
``It's a very good price: That augurs well for the Reuters bid,'' said John Kinsey, a fund manager at Caldwell Securities Ltd. in Toronto, which oversees $900 million, including Thomson shares. Kinsey expected as much as $6 billion for the unit.
Shares of Toronto-based Thomson had their biggest jump in four years as investors became more confident the Reuters offer could be financed. The shares advanced C$1.74, or 3.9 percent, to C$46.74 at 4:10 p.m. New York time on the Toronto Stock Exchange. The stock has fallen 3.4 percent this year.
Reuters advanced 11.5 pence, or 1.9 percent, to 613 pence in London, valuing the company at 7.7 billion pounds. The stock surged a record 25 percent on May 4, after the company said it had been approached about a takeover. Thomson later said it was the suitor.
Thomson would need about $8.75 billion in cash to fund the purchase, based on the value of the offer when it was announced. Thomson offered about 697 pence a share for Reuters, comprised of 352.5 pence in cash and 0.16 Thomson share.
Electronic Information
The Canadian company said in October that it planned to sell its learning assets, which sells textbooks and testing materials. Thomson sold the unit, which includes the NETg and Prometric business that are being sold separately, for 3.2 times its 2006 revenue of $2.4 billion. The unit had profit of $383 million.
Wolters Kluwer NV, based in Amsterdam, agreed to sell its education unit for about $1 billion in March, or 2.4 times its 2006 sales.
Beats Estimates
Thomson's price was higher than an estimate of as $6.5 billion from Meg Geldens, an analyst at Man Securities in London who covers education publishers.
``The price shows there's a lot of appetite out there for media assets with strong cashflow,'' said Paul Richards, an analyst with Numis Securities in London. He estimated the unit may fetch $6 billion. Richards rates Reuters shares ``add.''
The Thomson unit sale sent shares of educational publishers higher. Shares of London-based Pearson Plc, the world's largest, gained 1.7 percent to 890.5 pence. Reed Elsevier Plc, also based in London, rose 2.67 percent to 663 pence.
The sale of the learning unit, and the bid for Reuters, are part of Thomson's efforts to transform into an electronic news and information provider.
Thomson, which grew from a single newspaper in Timmins, Ontario, into one of the largest newspaper publishers in the world, at one time operated travel companies and department stores and explored for oil. Thomson has since sold many of its assets, including its newspapers, and now gets more than 84 percent of its revenue from selling electronic information.
Reuters would triple Thomson's share of the financial data market to 34 percent.
Bloomberg LP is the parent of Bloomberg News and competes with Reuters in selling information and trading systems to the financial services industry.
Apax
Morgan Stanley and RBC Capital Markets advised Thomson on the sale. Evercore Partners Inc. and Atlas Advisors worked with Apax and the retirement funds.
The Ontario pension fund is among Canadian funds becoming more aggressive about taking direct stakes in companies rather than simply relying private-equity firms to invest on their behalf and take a share of the profits. The Canada Pension Plan Investment Board is a suitor for BCE Inc., the country's largest telephone company.
Apax is expanding its investments in North America after hiring John Megrue from Stamford, Connecticut-based Saunders Karp & Megrue LP to run its takeover business in the U.S. two years ago.
The firm stopped investing in start-up companies to focus solely on leveraged buyouts after raising a record 10 billion euro ($13.5 billion) buyout fund.
The learning transaction is scheduled to close in the third quarter.
To contact the reporter on this story: Cecile Daurat in New York at cdaurat@bloomberg.net
