For Thomson, One Deal Seals Another

Target: Thomson Learning and Nelson Canada

Price: $7.75 billion

Sponsors: Apax Partners and OMERS Capital Partners

Seller: Thomson Corp.

Financial Advisors: Sponsors: Evercore Partners and Atlas Advisors; Seller: Morgan Stanley and RBC Capital Markets

With the lucrative sale of its education division to two buyout firms in hand, the Thomson Corp. plans to use the significant cash infusion to complete its goal of acquiring Reuters PLC in a friendly takeover.

New York-based Apax Partners and OMERS Capital Partners, the private equity arm of the Ontario Municipal Employees’ Retirement System, agreed May 11 to spend $7.75 billion to acquire Thomson Learning and Nelson Canada, also a division of Toronto-based Thomson that focuses on education. When Thomson in October announced its intention to sell the learning units, the company predicted the deal would fetch $5 billion. Analysts pegged the probable sum at $6 billion.

The proceeds gave Thomson nearly all the cash it needed to move ahead with the Reuters deal, a merger that, pending approval from shareholders and antitrust regulators, will create a new giant in the field of financial data and information. The 50-50 cash and stock offer from Thomson, agreed to on May 14, will require the Canadian company to pay 352.5 pence per Reuters share, which works out to roughly $8.72 billion. The whole deal is worth an estimated $19.2 billion, which includes $1.7 billion in Reuters debt.

Richard Harrington, Thomson’s CEO, had previously said the sale of the education businesses would give the company cash to pursue acquisitions that would “accelerate the development of our core businesses.” The combined company will be called Thomson-Reutuers, while the Thomson Financial division will be rechristened Reuters. (Thomson Financial publishes Buyouts.)

For Apax and OMERS, the Thomson division came at a lofty price. Randal Rudniski, an analyst with Credit Suisse North America, wrote in a research note that $7.75 billion values the units at 14x EBITDA. The price represents “the highest multiple of any education sale we are aware of,” despite the fact that Thomson Learning was the company’s “lowest growth and lowest return segment,” Rudniski wrote.

The buyout partners, meanwhile, were attracted to the education unit’s “global media properties, which have achieved strong positions in their respective markets and have delivered stable and predictable growth,” said Jackie Reses, partner at Apax Partners, in a statement.

The Royal Bank of Scotland, JPMorgan, Citigroup, UBS and The Royal Bank of Canada are providing debt financing for the buyout firms. The education division deal is expected to close in the third quarter of 2007.—J.H.