S&P has also placed Reuters Group's 'BBB+'long-term corporate credit and senior unsecured debt ratings on 'watch', but with developing implication.
LONDON: Global rating agency Standard and Poor's has placed US-based information service provider Thompson Corporation's ratings on 'watch' with negative implication after the firm made an preliminary takeover bid of about 19 billion dollars for UK's Reuters Group Plc.
S&P has also placed Reuters Group's 'BBB+'long-term corporate credit and senior unsecured debt ratings on 'watch', but with developing implication.
"The negative CreditWatch placement on Thomson is based on the likelihood that the combined company's pro forma leverage will increase significantly in the near term following the closing of the proposed transaction," Standard & Poor's credit analyst Lori Harris said.
"We believe that Thomson's financial risk profile will no longer be in line with an 'A-' rating," Harris added.
The agency has placed Reuters Group Plc on watch with 'developing' implications, which means that the ratings could be raised, lowered, or affirmed, depending on the outcome of Standard & Poor's review.
Thompson Corporation's ratings include its 'A-' long-term corporate credit and senior unsecured debt ratings.
While, the 'A-2' short-term corporate credit rating on Reuters and the commercial paper ratings on Thomson and Reuters are affirmed, Harris said.
The agency's decision follows the announcement Thomson is in discussions to acquire Reuters for about 19 billion dollars, with its shareholders expected to receive both cash and Thomson shares, valuing each Reuters' share at 705 pence.
However, S&P said acquisition of Reuters should enhance Thomson's business risk profile as the merger would create a global leader in information market.
With 2006 revenues of about five billion dollar and an EBITDA margin of 18 per cent, Reuters would meaningfully increase Thomson's scale and geographic footprint in the electronic media segment, Harris said.
Standard & Poor's expected that a downgrade on Thomson would likely be limited to one notch, given management's strong commitment to deliver the combined business from free cash flow to levels more appropriate for the 'BBB+' rating.
Although the long-term corporate credit rating on Reuters would be withdrawn upon closing of the transaction, it is possible certain ratings on Reuters' debt issues would remain.
The rating agency said it would continue to monitor developments and meet with management to discuss the combined firm's financial policies, pro forma credit measures for the transaction, and business strategies.
The resolution of the Creditwatch placements depends on the successful closing of the transaction and on obtaining the necessary shareholder and regulatory approvals in the various markets, S&P said.
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