Friday, February 10, 2006

Thomson Further Pares its Portfolio of Print

In Thomson's Q4 2005 and Full Year 2005 earnings release and accompanying slides, CEO Dick Harrington repeatedly pointed out the importance of achieving growth through the sales of "electronic solutions and services". Thomson illustrates the components of its products and services as a value pyramid with three layers. The foundation is the "content" layer, the middleware is the "platform", and the pinnacle is to "enable results".

Thomson has made good progress in transitioning to electronic content delivery and in building platforms for digital content sources in three of its four groups: Thomson Financial's (TF) Thomson One platform; Thomson Legal & Regulatory's (TL&R) Novus platform; and the more recent Thomson Pharma platform in Thomson Scientific & Healthcare (TS&H). The Thomson Learning (TL) division is the last to remain with less that half of its revenue base derived from electronic sources and services at just 37% compared to 98% from TF (see page 22 of slides for complete divisional figures), but that initiative is clearly underway. As part of the transition to solutions & services, Thomson announced the divestment of three companies within its Learning group. They include "Peterson's, a college preparatory guide; the U.S. operations of Thomson Education Direct, a consumer-based distance learning career school; and K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic community. The financial results of these businesses are included in Thomson Learning for 2005 and will be reclassified as discontinued operations beginning in the first quarter of 2006. The combined annual revenues of these three businesses are approximately $145 million" (from the earnings releases). In addition, Thomson put its American Health Consultants' (AHC) business, which generated $35 million in revenue in 2005,up for sale in December 2005.

Harrington indicated that the divestments are part of a portfolio optimization exercise and further explained that if parts of the current portfolio don't fit with the primary solutions and services on which Thomson has chosen to focus, then the individual properties lose strategic value and will be sold. Looking at the properties that are being divested, it is also clear that print-heavy units, as demonstrated by K.G. Saur and AHC, are prime candidates for divestment.

Shift in Acquisitions Strategy

I've commented before on Thomson's shift from an acquisition-heavy growth strategy to an organic growth strategy (see: Organic Chemistry: Can Thomson Pharma Provide Organic Growth?). Harrington again emphasized his "build rather than buy" preference. Total spending on acquisitions was $289 million in 2005 and planned spending on "tactical" acquisitions for 2006 is between $200 and $500 million. Contrast these figures with 2004 levels, when Thomson spent $1.7 billion on acquisitions. To its credit, Thomson has demonstrated good progress in achieving higher organic growth with its successful initiatives in TL&R and TF, where organic growth was higher than growth through acquisitions in 2005. TS&H has yet to prove its success with the Thomson Pharma platform, but it is still too early to gauge its ultimate success. For 2006, Thomson will likely be focused on developing its common platform for the Learning division, so that it can compete effectively in the rapidly evolving eLearning segment.
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