Valuentum Securities Exclusive Analysis for the Discerning Investor

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Investment data provider and news aggregator Thompson Reuters (TRI) announced that it will acquire foreign exchange data provider FX Alliance (FX) for $623 million, or $22 per share. The deal represents a premium of 40% over the firm’s closing price on Friday. We still think shares of Thompson are fairly valued at current levels and view the deal as value neutral.

Though the deal is relatively small for Thompson, which sports a market cap over $23 billion, we think the price (about 25x 2012 consensus earnings) was reasonable considering FX Alliance is projected to more than double earnings this year. Consensus estimates suggest that FX's earnings growth will be in the high-single-digits from 2012 to 2013, but we think Thompson will be able to extract even greater value from the deal as FX Alliance’s services are a good complement to its current offerings. FX Alliance provides its users with a trading platform, and it serves money managers, broker-dealers, traders, and market makers.

Nevertheless, we think shares of Thompson Reuters are fairly valued at current levels. The company does sport an annual dividend yield in excess of 4.5%, but we do not think the dividend has room to grow meaningfully (especially if/when the FX deal closes). The firm scores a 6 on our Valuentum Buying Index (our stock-selection methodology), so we don’t think now is a good time to establish a position in the company in the portfolio of our Best Ideas Newsletter.