The Thomson Corp. $36 - Toronto symbol TOC

THE THOMSON CORP. $36 (Toronto symbol TOC; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 638.9 million; Market cap: $23.0 billion; SI Rating: Above average) provides specialized information to users in the legal, accounting, financial, scientific and healthcare professions. Over 80% of Thomson’s revenue comes from electronic products, such as software and databases. As well, 80% comes from subscriptions, which gives its predictable revenue streams. In 2007, Thomson earned $1.1 billion before one-time items, up 28.4% from $857 million in 2007 (all amounts except share price and market cap in U.S. dollars). Per-share earnings rose 27.1%, to $1.69 from $1.33. Revenue grew 10.6%, to $7.3 billion from $6.6 billion. If you disregard acquisitions, revenue rose 6%. Thomson aims to complete its merger with UK-based Reuters Group plc in mid-April. The deal will let Thomson take advantage of Reuters operations to expand sales in Europe and Asia and cut its reliance on North America, which accounts for 83% of its revenue. The company can also market Reuters products to its own customers. To win approval from competition regulators in Canada, the United States and Europe, Thomson and Reuters have agreed to make certain financial information databases available to competitors. The merged company will change its name to Thomson Reuters, and will have annual revenue of about $11.4 billion U.S. Its shares will trade in Toronto, New York and London. The Thomson family, which currently owns 70% of Thomson Corp., will control 53% of Thomson Reuters. Due to timing differences between Thomson’s and Reuters’ dividend payment schedules, shareholders will receive $0.31747 U.S. a share on May 1, 2008, plus $0.22253 U.S. a share in September. Regular quarterly payments of $0.27 U.S. a share will resume in December, for a yield of 3.0%. Thomson’s stock is down about $10 since the merger announcement in May 2007. That’s mainly due to fears that big write-downs of mortgage-backed securities will prompt banks and other lenders to spend less on information products. However, Thomson has a strong history of successfully cutting costs and savings from the merger should help offset any short-term drop in revenue. Thomson is a buy.

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