Summary of Commission Decision of 19 February 2008 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case COMP/M.4726 — Thomson Corporation/Reuters Group) (Text with EEA relevance)
Date: 2008-02-19
Institutions: European Commission
Subjects: competition, economic concentration, information, merger control, provision of services, software

20.8.2008

EN

Official Journal of the European Union

C 212/5

Summary of Commission Decision

of 19 February 2008

declaring a concentration to be compatible with the common market and the functioning of the
EEA Agreement

(Case COMP/M.4726 — Thomson Corporation/Reuters Group)

(Only the English version is authentic)

(Text with EEA relevance)

(2008/C 212/04)

On 19 February 2008 the Commission adopted a Decision in a merger case under Council Regulation (EC)
No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, and in particular
Article 8(2) of that Regulation. A non-confidential version of the full decision can be found in the authentic language
of the case and in the working languages of the Commission on the website of the Directorate-General for Competition,
at the following address:

http://ec.europa.eu/comm/competition/index_en.html

I. INTRODUCTION

1. On 3 September 2007, the Commission received a notifica-
tion of a proposed concentration by which Thomson
Corporation (‘Thomson’) acquires sole control of the under-
taking Reuters Group plc (‘Reuters’). Thomson Financial
and Reuters are both global providers of financial informa-
tion, integrated with software tools and applications. They
aggregate and disseminate market data content including
real-time market data, and provide analytics, trading and
messaging capabilities needed by financial professionals.

II. RELEVANT MARKETS

II.A. General characteristics of the market

2. The proposed transaction relates to the financial informa-
tion industry,
information,
i.e. the provision of financial
analytics and trading capabilities. The main users of the
notifying parties' products are customers in the financial
service industry, such as banks, traders, funds, corporate
customers, etc. Financial
information products notably
consist of indicative or tradable prices for various types of
financial
such as equities, corporate and
government bonds, etc. They also include real time infor-
mation, decision support tools, historical and reference data
and news and analysis.

instruments

3. Customers in the financial services industry can be broadly
categorised into those engaged in sales and trading of finan-
cial instruments and trade execution (‘on-trading floor’) and
those involved in research, providing advice and asset
management (‘off-trading floor’). According to the parties,
off-trading floor users can be further categorised into four
main customer segments: Wealth Management (‘WM’ —
financial advisers and private banks), Investment Manage-
ment (‘IM’ — invest on behalf of third parties, such as
mutual funds), Investment Banking (‘IB’ — mergers and
acquisitions) and Corporates (internal firm business).

4. The notifying parties are both active in the on-trading and
off-trading floors. Reuters has a particularly strong presence

in the on-trading floor, whereas Thomson is particularly
active in the off-trading floor. However
the notifying
parties' activities overlap to a significant degree in a number
of off-trading floor related activities. A number of competi-
tors are present on the market, including Bloomberg which
is active in all segments, and other smaller competitors
such as FactSet, Standard & Poor's, IDC, etc.

5.

Financial
main distribution channels:

information is supplied to customers via two

(a) via direct datafeed where

customers obtain their
content in a direct or ‘raw’ format, from which they
build their own internal applications or portals. These
datafeeds generally correspond to one specific content
set
fixed income data, broker reports,
news, etc.); and

(ex: equities,

(b) via ‘desktop solutions’

(alternatively called ‘worksta-
tions’) where several content sets are generally included,
together with a number of software applications. Most
large competitors propose desktop solutions, and need
in many cases to source specific content sets to their
competitors, including Thomson and Reuters. The bulk
of sales of the notifying parties is realised via such
desktop products.

II.B. Relevant product markets

6. The notifying parties delineated relevant markets and shares
along the lines of the two groups: (a) Sales & Trading and
(b) Research and Asset Management, corresponding to
customers engaged in, respectively, ‘on-trading floor’ and in
‘off-trading floor’ activities. These groups were further
broken down as follows: Sales & Trading:
(a-1) Fixed
Income; (a-2) Institutional Equities; (a-3) Foreign Exchange;
and
(a-4) Commodities & Energy. Research
and
asset management:
Investment Management,
(b-2) Wealth Management, (b-3) Investment Banking, and
(b-4) Corporates.

(b-1)

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Official Journal of the European Union

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7. Based on these definitions, at the EEA/worldwide level, the
parties would overlap in six of
the product segments:
(a-1) Fixed Income; (a-2) Institutional Equities; (b-1) Invest-
ment Management; (b-2) Wealth Management; (b-3) Invest-
ment Banking; and (b-4) Corporates, but their combined
market share would not be particularly high, and in any
case never higher than 25 %.

sets

fields,

8. Although the market investigation has largely confirmed
the distinction between sales & trading and research and
it also notably indicated that
asset management
the adequate antitrust
represent
discrete content
markets for assessing the impact of the present merger. To
this extent some discrete products, content sets or function-
ality such as transaction platforms, datafeeds, real-time
market data, non-real time data, analytics, News, Broker
time
Research, Fundamentals, Estimates, Economic data,
series, messaging, etc. have been indicated as the most rele-
vant competitive factors by respondents.

(g) Earning estimates. Earning estimates are predictions
made by analysts that a company will achieve a certain
amount of profit/loss in the future,
typically with
respect to key metrics such as annual or quarterly earn-
ings per share.

(h) Fundamentals. Fundamentals data consists of various
company-specific data, such as financial statement data,
calculated financial
ratios (e.g. averages for growth
rates), per share data (e.g. earnings/book value/cash
flow per share), etc.

(i) Time series of economic data. Economic data consists of
data on macroeconomic variables, such as GDP, unem-
ployment, etc.

(j) Other

content

set. Ownership data, deals database,
profiles of managers, public filings, other times series
(equity, fixed income, futures, options, warrants, etc.).

9. Along these lines, the Commission conducted an extensive
market investigation concerning principally the following
content
relevant product
markets:

identified as

sets/products,

Sales & Trading

(a) Real-time market data sold through desktop products/work-
stations. They include real-time market data and finan-
cial information in all or specific assets classes (Institu-
tional Equities, Fixed Income and other relevant asset
classes).

(b) Real-time datafeeds. Real-time market data supplied on a

standalone basis by way of data feeds.

(c) Market data platforms. Such platforms receive datafeeds
from multiple sources (including customer sources) as
inputs and standardise these datafeeds into a format so
that they can be used by the customer.

(d) Transaction platform for fixed income securities. These plat-
forms allow for the transaction of fixed income securi-
ties by connecting sellers and purchasers of bonds and
other fixed income products.

(e) News. Financial and business-related news constitute a
financial content that is considered a key separate asset
in the context of especially the on-trading floor, but
also in respect of the off-trading floor space.

Research & Asset Management

(f) Broker research reports. Broker research reports contain

an analysis of a security, an industry or a market.

II.C. Relevant Geographic Markets

10. As regards the separate content sets markets, the market
investigation indicated that these markets are to be regarded
as global in scope, but it provided some indications that
differences may exist between the very large investment
(tier 1) banks, which normally source on a global scale, and
the smaller tier 2 or tier 3 financial
institutions, which
would source on an EEA-wide or even national level. In any
case, the geographic scope of the market would appear to
be at least EEA-wide and may probably be worldwide in
scope.

III. COMPETITIVE ASSESSMENT

11. The Commission investigation has shown that Thomson/
Reuters would have the incentive and the ability to develop
anti-competitive behaviour in some fields in the Research
and Asset Management (off-trading floor) area.

III.A. Sales & Trading

12. The market investigation confirmed that the merger does
not raise competition concerns in the Sales and Trading
area, generally and with respect to the relevant markets
identified above ((a) real-time market data sold through desktop
products/workstations;
(c) market data
platforms; (d) transaction platform for fixed income securities;
(e) News). The reason for such lack of concerns principally
lies in the very limited presence of Thomson in the Sales
and Trading area. The main asset of Thomson in this area is
Tradeweb, a transaction platform for Fixed Income securi-
ties, but Reuters is marginally active in this specific area.

(b) real-time datafeeds;

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Official Journal of the European Union

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III.B. Research & Asset Management

17. The merger would therefore lead to a near monopoly for

the aftermarket distribution of broker reports.

in the areas of broker

13. The Commission analysis showed that the merger raises
competition concerns
reports,
earning estimates, fundamentals, and economic time series.
With regard to these four content sets, both Thomson and
Reuters are the main suppliers on the market, with compe-
titors unable to provide equivalent data in terms of depth
(history) and breadth (geographical coverage). Many compe-
titors redistribute either Thomson or Reuters data. With
such a position Thomson/Reuters would have the incentive
and the ability to increase its prices subsequently. In addi-
tion, the time and investments necessary for a competitor
to build a comparable offer would be subsequent (several
years and millions of Euros), and in any case would not
guarantee the same depth of data as some financial infor-
mation are hardly available in the public space several years
after their publication.

14. Customers in their majority purchase desktop solutions
embedding several content sets together with analytic soft-
ware. In the supply of desktop solutions, Thomson and
Reuters compete with competitors which may procure
some of Thomson's and Reuters' content sets as input for
their own desktop products. In this respect the distribution
of desktop is vertically related to the provision of content
sets. This vertical relationship may further increase the
parties' incentive to increase prices for the delivery of such
databases to customers reached via competitors' platform
or
to
Thomson/Reuters own customers in order to induce custo-
mers to prefer the Thomson/Reuters package (content and
application tools) instead of that of competitors.

these content sets

the provision of

to restrict

Earning estimates

18. Estimates expectations are the most important determinant
of equity prices since investors buy stocks at prices that the
market determines based on corporate earnings potential.
Just like Broker reports, earning estimates are produced by
brokerage firms.

19. Reuters and Thomson are the main suppliers of earning
estimates. There is no other close substitute since no other
company offers the breadth and depth of Reuters and
Thomson databases. FactSet/JCF is a distant third player
with weak market coverage outside Europe and Bloomberg
is not considered by customers and competitors as a solid
in
competitor (its offer has only come on the market
February 2007). According to the parties' estimates, the
market shares of the combined entity would be [40-50] %
(worldwide at the retail level, Thomson [30-40] %, Reuters
[0-10] %) although an internal document points to higher
market shares for Thomson (‘Thomson has [60-70] % of
global shares for Estimates’).

20. The merger would remove Reuters, the most viable alterna-
tive to Thomson, and eliminate rivalry between the most
credible suppliers. The only other significant supplier of
estimates would be FactSet/JCF whose offering is much
more limited in breadth and depth.

Broker reports

Fundamentals

15. Broker reports are created by broker companies willing to
create commissions on transactions and include financial
information on firms and markets. The industry distin-
guishes (i) real-time research (distribution of broker reports
in the 7-30 first days after their publication) when reports
are distributed to stimulate transactions, and (ii) aftermarket
research (distribution of reports after this initial period)
where reports are used by e.g. investment bankers to have a
business insight of a firm or a sector.

16. The market

investigation stressed that

the competition
concerns relate to the distribution of aftermarket research.
In real-time research, several competitors are emerging
(FactSet, Bloomberg, Capital IQ) and the brokers themselves
reports with an objective to
actively distribute their
generate commission fees. In aftermarket research, the noti-
fying parties estimate their market share at
[70-80] %
(Thomson [60-70] %, Reuters [0-10] % worldwide). In an
internal document, Reuters estimates its own market share
at [0-10] % and Thomson's market share at [80-90] %. All
other competitors redistribute either Thomson or Reuters
aftermarket research offerings. Direct distribution of after-
market reports by individual brokers is very limited.

reportable pro forma financial

21. Fundamentals consist of various company-specific data,
such as
statement data
(including balance sheet, cash flow and income statements),
calculated financial ratios, etc. Such information is publicly
available on an individual basis (e.g.
from companies'
website), but some providers aggregate them in databases.
For instance, Reuters covers [50 000-60 000] (public and
private) active and inactive companies, whereas Thomson
covers [50 000-60 000] (public and private) active and
inactive companies.

22. The Commission principally relied in its analysis on internal
the market investigation. The
documents and results of
market investigation notably showed that there are three
main providers of fundamentals data: Thomson, Reuters
and Compustat. Respondents to the Commission investiga-
the offering of Compustat database
tion indicated that
would not be comparable to that of Thomson and Reuters,
since it is principally US-focussed and furthermore would
not be suitable especially for buy-side customers (hedge
funds and investment managers) who are active in quantita-
tive investment management and require ‘global’ fundamen-
tals, with depth and back history. Other competitors such
as Capital IQ and Bloomberg offer fundamentals data with
more limited depth and breadth.

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Official Journal of the European Union

20.8.2008

23. Accordingly, the merger seems to have significant hori-
zontal as well as vertical effects on fundamentals. The
merger would eliminate rivalry between the competition
fundamentals with global
between the two suppliers of
coverage in breadth (Asia, US and EEA-wide coverage) and
comparable depth, plus sufficient history, leaving re-distri-
butors principally with Compustat's database which is
focussed on the United States only.

Time series/economic data

24. Economic data consists of data on macroeconomic vari-
ables, such as GDP, unemployment, money supply, balance
of trade figures and inflation rates. The ultimate sources of
such data are typically governmental bodies (national and
supranational statistical offices or central banks), but such
series also include proprietary data of, e.g., research insti-
tutes.

25. The Commission principally relied in its analysis on internal
documents and results of
the market investigation. The
main competitor of the notifying parties is Global Insight
which would be left as the only large competitor
to
combined
Thomson/Reuters post-merger. However
Thomson/Reuters would have a most complete offer, with
notably the largest depth and breath of data in terms of
geographic reach and history. Global Insight is smaller in
general terms and focuses principally on US data. All other
competitors both lack breath and depth of data in order to
be considered comparable to Thomson or Reuters.

the

26. Internal documents of the parties indicate that the notifying
parties' products Datastream (Thomson)
and Ecowin
(Reuters) have been in close competition. After the merger,
such competition would to come to an end.
It can be
concluded from the above that the proposed transaction
would raise serious doubts as to its compatibility with the
common market. Post merger, one close competitor would
disappear
time series economic
content sets, and customers would be left with limited
choices that represent lower credibility and limited scope in
terms of depth and breadth.

from the market

for

Vertical relations

27. The merger

therefore leads

to non-coordinated effects
resulting from horizontal overlaps on the markets for
and
broker
economic time series vis-à-vis final customers as well as re-
distributors.

earning estimates,

fundamentals,

reports,

28. In addition to this horizontal effect following the merger
and as an aggravating factor, the merger also gives the
merging parties
the ability and incentive to foreclose
competitors, by raising prices for those content sets or fore-
closing them entirely, on the downstream market
for
desktop products including those content sets sold to users
in the area of investment management, investment banking
or corporates. Competitors producing desktop products for
those markets heavily depend on Thomson/Reuters for this

data. The incentive results from the fact that Thomson and
Reuters are themselves active with products downstream.
These concerns were raised by a number of competitors
and customers and were confirmed by an internal docu-
ment from Reuters which indicates that would Thomson
pull out of the distribution of its research and estimates
offering from one competitor, Reuters should take advan-
tage of this move to capture this competitor's customers. It
is worth noting that the strategy envisaged by Reuters is
not to replace Thomson as a content set provider, but
rather to fully displace this competitor.

III.C. Conclusion of the assessment

29. Based on the above the Commission has come to the
conclusion that the proposed merger would — in terms of
serious doubts — significantly impede effective competition
in the markets for broker report (aftermarket research), esti-
mates (both current and historical estimates), fundamentals,
and time series/economic data (TS/E) both at the worldwide
and EEA level.

IV. REMEDIES

30. In order to remove the preliminary concerns identified in
the areas above, the notifying parties have proposed first
commitments on 6 December 2007, and an improved
version on 21 December 2007 (‘the
commitments’)
following the presentation of the results of the market test
conducted by the Commission. The commitments are
designed to enable the purchaser(s) of the assets to compete
effectively in selling Estimates, research, fundamentals and
time series/economics.

31. These content sets are not produced and supplied by
distinct business entities that could simply be divested to
remedy the Commission's concerns. For this reason full
divesture of certain Reuters or Thomson businesses was not
contemplated. Since these relevant content sets take the
form of databases and can be copied and transferred, the
parties offered to transfer copies of the databases together
with tangible and intangible assets which are used in
connection with the relevant databases.

32. The commitments are based on the main following

elements:

(a) Thomson and Reuters will commit to sell a copy of the
database for each of the content areas fundamentals,
estimates, aftermarket broker research, and time series/
economics;

(b) in order to operate the databases, the purchaser will be
offered the opportunity to recruit key personnel and
other personnel currently operating the databases on a
daily basis;

(c) the notifying parties will license on a royalty free basis
all
IP rights, trade secrets, know how and technical
information embodied in the databases and will provide
software for collection and aggregation.

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(d) Thomson and Reuters will provide transitional technical
support services for a period of up to […] from the
date of the divestiture;

to assist

(e) Thomson and Reuters will undertake reasonable best
effort
the purchaser(s) with obtaining the
necessary content owner (brokers) consents. For an
extended period of up to […], Thomson and Reuters
will permit the purchaser to act as a redistributor of the
content of contributors having not reached an agree-
ment with the purchaser;

(f) Thomson and Reuters will assign to the relevant
specifically for direct
purchaser customer contracts
content datafeeds from the Thomson Fundamentals and
Reuters Estimates databases. To the extent that such
contracts are not assignable, the notifying parties will
allow such customers to early terminate their contracts
to enter into negotiation with the purchaser;

(g) the purchaser

specify

criteria

any potential
purchaser should be an existing provider of financial
information, have an incentive to distribute the relevant
databases via third parties, and have the necessary
financial resources.

that

33. Competitors and customers globally acknowledged during
the market test that facilitating the rapid entry of a new
competitor in the relevant fields would be an adequate
remedy to their competition concerns. More generally,
these commitments address the competition concerns iden-
tified by the Commission during the market investigation
and respond to the concerns raised during the market test
with regard to the viability of the proposed remedy.

34. The databases should notably be divested with all assets
necessary to run the business (software, intellectual prop-
erty rights, etc). The purchaser will also have the possibility
to hire all necessary personnel from Thomson and Reuters
via the organisation of a recruitment process.

to almost

immediately after

35. In addition, the notifying parties will facilitate the signature
information contributors and will
of deals with financial
permit the purchaser to serve as a redistributor of
the
content of any such contributors with whom the purchaser
does not yet have appropriate arrangements for a period of
[…]. This clause will notably make it possible for the
purchaser
the transaction
propose a credible offer on the market. With regard to esti-
mates and fundamentals, customers purchasing direct data-
feeds will be either transferred to the purchaser or offered
the possibility to early terminate their contracts with
Thomson or Reuters, therefore allowing the purchaser to
amortize its costs on an existing customer base. It should
be noted that the transfer of customers was not contem-
plated in the areas of broker reports or economic time
series as collection costs for these databases are significantly
lower and the viability of the offer of the purchaser will not
depend on the transfer of existing customers.

36. Finally, the commitments foresee that the purchaser should
be an existing provider of financial
information, and as
such will already benefit from a strong reputation on the
market. Such suitable purchaser criteria are an additional
guarantee that
the remedies will be operational on the
short
term and that competition will be restored after
completion of the merger.

V. CONCLUSION

37. It is accordingly concluded that the Commitments modify
the notified concentration to such an extent
the
serious doubts of the Commission as to the compatibility
that concentration with the common market are
of
removed. The concentration should, therefore, be declared
compatible with the
to
Article 8(2) of the Merger Regulation and with the EEA
Agreement pursuant
to
compliance with the commitments.

common market pursuant

to Article 57 thereof,

subject

that