Millions in projected cost-savings at Refinitiv will be a key consideration for investors mulling the US$13.5 billion-equivalent loan and high-yield bond sale financing the buyout of the business, credit research firm CreditSights said on Monday.
U.S. private equity firm Blackstone Group agreed to buy a 55 percent stake in Thomson Reuters’ Financial & Risk division, which includes IFR and has been renamed Refinitiv, in January.
The debt package is the largest buyout financing since the financial crisis and is being seen as a major test of the leveraged finance markets on both sides of the Atlantic.
In a note on Monday, CreditSights analysts said one of the major factors investors will consider is the US$650 million in run-rate cost savings expected to be made in the first couple of years, and how realistic that target is.
“Value creation from this deal will come first and foremost from cost cutting,” CreditSights said.
“We view this target (US$650 million) as aggressive, though not impossible, and would push management for more color on how these cost cuts will be achieved and how progress will be communicated to investors going forward.”
Blackstone’s track record and its success in cutting costs at other companies it owns will be important.
But some investors have already told IFR that the magnitude of the cost-savings is off-putting.
Some details have already emerged on how the cost savings, to be completed by the end of the third fiscal year after closing, will be achieved. Almost half, or around US$300 million, will be from headcount reduction alone, CreditSights said.
Other savings are expected to come from the virtualization of IT infrastructure, procurement and real estate.
More details on the company’s strategy are expected to emerge over coming days as meetings are held with investors. A bond roadshow began September 5 and continues this week. The bond is expected to price on September 18.
Price talk on the US$5.5 billion-equivalent bond, which includes four parts in euros and U.S. dollars, was announced last week.
Initial price thoughts are low 7 percent area and low 9 percent area, respectively, for the US$2 billion 7.5-year non-call three senior secured first-lien bond and US$1.8 billion eight-year non-call three senior unsecured bond.
Two euro-denominated tranches are also on offer with the same maturities and seniority. They will be sized at US$1 billion-equivalent for the 7.5NC3, and US$700 million equivalent for the 8NC3. Initial price thoughts are 5 percent area and 7 percent area, respectively.
The debt package also includes US$8 billion of loans.
ELEKTRON CROWN JEWEL
Blackstone is making its biggest bet since the financial crisis with the acquisition, which pits co-founder Stephen Schwarzman against fellow billionaire and former New York Mayor Michael Bloomberg.
The F&R business, now counted as a discontinued operation, grew revenues by 2 percent in constant currency to US$1.55 billion in the second quarter, Reuters reported last month.
After five years of transition at F&R, CreditSights said it was “cautiously optimistic” the worst is behind Refinitiv.
“Pressure on the desktop business from headcount reduction on the sell-side and commercial price adjustments will continue,” it said. “However, we expect growth from Elektron, transactions and risk will be able to offset these pressures at the group level.”
Refinitiv’s data platform business Elektron was probably one of the most attractive assets to Blackstone, it said.
“The use of Refinitiv’s data (the data that powers Elektron) will be a focus. There are many avenues through which big data can be levered to create value for Refinitiv. Elektron’s large data set also puts Refinitiv in a strong position to make advances in AI.”
Blackstone will also look to consolidate parts of the business, either with companies it owns, or with competitors, CreditSights said.
Press reports emerged earlier this year that a listing or sale of fixed income trading platform Tradeweb, which is majority-owned by Thomson Reuters, was also being considered.
Canada Pension Plan Investment Board and an affiliate of Singapore sovereign wealth fund GIC will invest alongside Blackstone. The deal is expected to close on October 1.
Other analysts have also been talking about the deal recently. Covenant Review on Friday published a note urging investors to push back on aggressive covenants.
Update: Canada’s Thomson family controls more than 63 percent of Thomson Reuters shares through Woodbridge Co Ltd.
(Reporting by Natalie Harrison; editing by Shankar Ramakrishnan and Paul Kilby)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)