Since he became CEO of Reuters Group in July 2001, much has been made of the fact that Tom Glocer, a merger-lawyer-turned-business- executive, is both the first American and the first nonjournalist to run the London-based media empire. In many ways, though, an outsider was just what the company needed.
Though rich in tradition -- it helped invent the financial news business more than 150 years ago by deploying carrier pigeons to transmit word of market developments in Belgium to Germany ahead of rail couriers -- Reuters had become bloated and unfocused by the time Glocer took over for outgoing CEO Peter Job. It had seen its market share in the financial data business shrink from more than 60 percent to less than 40 percent as aggressive New York rival Bloomberg grew to command a 44 percent share.
Upon taking the CEO job, Glocer, who had joined the company’s legal ?department in 1993, immediately began restructuring its expansive -- and expensive -- operations. Instituting programs to more closely measure the performance of the company and its employees, he has overseen several waves of job cuts and trimmed £900 million ($1.6 billion) from Reuters’s annual expenses, which were £3.5 billion when he became CEO. ?Glocer, 46, is selling assets like electronic trading firm Instinet Group, which is being acquired for $1.9 billion by private equity firm Silver Lake Partners and the Nasdaq Stock Market. Investors have responded, sending Reuters shares up from a low of less than £1 in April 2003 to nearly £4 in late October.
The turnaround hit a rough patch in late July when Glocer revealed his “core-plus” expansion plans. Instead of enjoying their first year since 2001 without restructuring charges against earnings, shareholders in 2006 and 2007 will weather £130 million in charges for investments in growth. The plan aims to boost Reuters’s current 2 to 4 percent annual growth rate to 5 to 7 percent, beginning in 2008. Shareholders sent the company’s stock down nearly 8 percent on July 26, the day the plan was announced.
Glocer remains confident, however. His plan calls for increased emphasis on supporting transactions, offering exclusive data, packaging current services into so-called enterprise solutions for clients and developing new markets among individual investors and in countries like India and China.
Reuters’s vaunted news organization is conspicuously missing from the CEO’s expansion plans. Glocer has made sweeping cuts, such as farming out coverage of some U.S. companies to low-cost personnel in India, that have caused some ructions in Reuters newsrooms. But he says it would be foolish to divest the operation, because news is a critical part of the unique content that the company can offer its customers. During a visit to Institutional Investor’s offices in September, Glocer sat down with Editor Michael Carroll and Senior Editor Justin Schack.
Institutional Investor: Why is the market skeptical about your growth plan?
Glocer: There are two things going on. One, some investors were looking at 2006 as the first “clean” year in a while, without charges, and they were disappointed when we announced some investments to transform the company and grow faster in the future. There are value investors who bought the stock at £1 a couple of years ago, stayed with us through the turnaround and are now saying, “Okay, I don’t want to double down for another three to five years.” Growth and momentum investors that bailed out a few years ago are taking a wait-and-see attitude.
Are investors less willing these days to make long-term bets?
I think so. A lot of people have told us that our strategy sounds sensible. But the reality of the market is different. I explained our strategy to one of our top ten institutional shareholders right after our July 26 announcement of the core-plus plan. And one guy there said a remarkable thing: “Tom, I have absolutely no doubt in my mind that what you have described is in the best interests of Reuters and its shareholders over a three-to-five-year period. My problem is that my investors don’t give me three to five years. I’ve got to show them every quarter. And you’ve made a hole in my quarter. What are you going to do about it?” We then had a good chat, because he’s a decent guy, but it illustrated to me that public markets are increasingly subject to the tyranny of the next three months at the expense of the next three years.
How do you convince the investors who are sitting on the sidelines?
We’ve outlined four components to our growth strategy. One, we’re significantly stepping up the pace in electronic transaction support. Two is what we’re calling high-value content, meaning that which is beyond just the generally available. Third is enterprise. That involves bringing together the variety of components we’ve had for a long time within Reuters to address a business need of our clients. For example, if a client says, “I want to be in the algorithmic trading business on Tuesday,” we’ll connect their price engine to whatever pools of liquidity make sense, as opposed to just giving them a market data platform. The fourth aspect is new markets, meaning new geographic markets, new asset classes and new audiences. We’ll be placing more emphasis on places like India and China. We’ll be moving into supporting our clients in exotic financial instruments, like weather and environmental derivatives. And we’re going to reach out to individual investors.
If you want to emphasize transactions, why did you sell Instinet?
Instinet was viewed by a lot of Reuters customers as a difficult, in-your-face competitor. It had been a source of friction for our big clients for a long time. That’s one reason. The other is that the Securities and Exchange Commission over the past 15 years has so changed the U.S. market structure that the cozy, high-margin business that Instinet once enjoyed withered away. The equity market has become so regulated that the only way to make money is to go for huge scale. Ultimately, the trouble with an equity exchange is that it has to make its data basically available to all comers. If I could take the data from the equity transactions and only make it available on Reuters -- like we do with foreign exchange, for example -- then I’ve got some synergy from owning the trading. But we couldn’t do that. The synergy isn’t there for a data vendor. But for [Nasdaq CEO] Bob Greifeld, it’s his core market.
What can you do to stop losses in your research and asset management units?
Most of the losses are coming from two things. One, we just launched the new version of Reuters Knowledge [a service providing consensus earnings estimates and other information about Wall Street research] a couple of weeks ago, and we haven’t been able to recoup the costs of developing it yet. It doesn’t yet have critical mass, but we believe it will be a profitable product. The other is that we operate separate data platforms for the retail private wealth management market. We have one for the Swedish equity market, one in South Africa, etc. We plan to merge those onto one common architecture, which will reduce costs and improve the economies of scale. And then we think we can make that profitable.
How will you attract individual investors as customers?
We want to take the existing Reuters.com platform and build it into a subscription-based service that will become a community of sorts for individual investors. Our professional advisory clients could then advertise to that community and use it to prospect for new business. A couple of years ago, we launched an instant-messaging service called Reuters Messaging, and we see that being used by subscribers and professional clients within this community. The flow between the two segments will be important.
How can you compete with Yahoo! Finance and other services that already have loyal followings?
Ironically, a lot of the data on Yahoo! Finance comes from Reuters. We are working on a new deal with Yahoo! that more clearly segments some of that stuff. We know we can do this in places like India, Germany, Europe and Asia, where our brand is stronger and the market is less cluttered. Do I think we can pass Yahoo! Finance? Certainly not in the next two years. But that should be an ambition.
Why not buy into that market?
That is certainly the strategy of the day, but I don’t want to adopt it. Dow Jones went out and bought CBS MarketWatch and [New York Times Co.] went out and bought About.com. It seems everyone is chasing someone, and there are some pretty funny prices being paid for things. It’s obviously not going to be an overnight thing. But we’ve got an amazing amount of our own content: 2,300 journalists around the world, pictures, video. And we think we can build organically whatever else we need.
