The
Thomson Corp. got going in 1934, when Canadian entrepreneur Roy Thomson
bought his first newspaper in Ontario. In subsequent decades, Thomson
acquired and divested its way into and out of a wide variety of
businesses in Canada, the U.K. and the U.S.: newspapers, television,
magazines, even oil and gas and travel. In recent years, however, the
buying and selling, complemented by internal initiatives, has taken on
a much clearer theme. Richard Harrington, the CEO since 1997, has been
leading a transformation of Thomson, from a diversified holding company
to an operating one with a well-defined mission: delivering information
and analytics to the world's growing cohorts of knowledge workers.
In a sense, the bet on knowledge workers is twofold. There are
those the company counts as customers for its four market groups -- the
professionals in law, finance, science and healthcare, and education
and training for whom Thomson provides what it calls "workflow
solutions." Then there are the ones inside Thomson who must devise and
execute its challenging strategy. Generating complex products and
services for demanding customers at the world's major law firms, banks
and pharma companies has involved reorganizing Thomson's own knowledge
workers, and creating some senior roles at corporate level. In
February, Michael Wilens moved up from the Thomson Legal &
Regulatory unit to become corporate chief technology and operations
officer. The month before, Richard Benson-Armer moved up from Thomson
Learning to become corporate chief strategy officer.
As those recent moves suggest, the transformation of Thomson -- a
company whose revenues grew 8% last year, to $8.7 billion -- is in some
ways still a work in progress. But one part of the operational
evolution is pretty well advanced: that of the legal department. The
changes there have been led by Deirdre Stanley, an M&A lawyer by
background. She arrived from USA Networks (now IAC/InterActiveCorp) in
2002 as Thomson's general counsel, with a mandate to do things
differently. "The idea," she says, "was to make the legal department
into a more strategic business partner."
More strategic? At first that sounds odd, since deal-driven Thomson
has long used its legal team to execute transactions. It's one thing to
buy and sell assets for a holding company, however, and quite another
to support growth at a company where acquisition issues are tightly
intertwined with operational ones. "There's no shortage of good M&A
lawyers," Stanley says. "It's a lot harder to get someone who has the
institutional knowledge within your organization to spot issues early
and help make a transaction more meaningful." At a company with
Thomson's ambitions, being a knowledge worker of the legal variety
requires -- well, more knowledge. Not just of the law, but of the
day-to-day businesses.
Four years later, a more strategic legal organization is largely in
place. Companywide, there are about 40 lawyers. Working at corporate
level are Stanley and about 10 specialists in areas such as
intellectual property and human resources, including a few geographic
specialists who concentrate on European matters. At the market group
level are small legal teams led by general counsels who have M&A
experience and are also involved in the strategy and day-to-day
business of the groups. Explains Darren Pocsik, general counsel at
Thomson Scientific and Healthcare: "Deirdre's mission was to really
embed the lawyers at a very senior level in the four market groups. Get
us involved and sitting on the executive committee of those
organizations, ensuring that we spent time with the chief strategy
officers and the other senior executives inside and out."
Thomson's legal setup isn't unique; in fact, it recalls the legal
organization General Electric Co. started putting in place in the late
1980s and early 1990s (see page 32), though of course, Thomson is much
smaller. Still, a look at how this team contributes to the Thomson
growth story is illuminating, both for the light it sheds on legal-team
contributions to dealmaking at a company with a global, information-age
strategy, and for the way it confirms a larger truth: To be an
effective member of the deal team, you need to be an effective member
of the business team.
Even more than GE, Thomson has been shaped by deals. Acquisitions
and divestitures have even shifted the company's geographic center of
gravity over the years, from Canada to the U.K. (where Thomson once
owned The Times of London, among many other properties) to the U.S.,
where it now earns more than 80% of its revenues. Since 2002, Thomson
has been listed on the New York Stock Exchange as well as Toronto's
exchange, though it remains majority controlled by the Thomson family
via their Canadian holding company, the Woodbridge Co. Ltd. Kenneth
Thomson, son of founder Roy (who became Lord Thomson of Fleet in 1964)
is chairman of Woodbridge; his son David is chairman of Thomson Corp.
and deputy chairman of Woodbridge. Thomson headquarters today are in a
modern high-rise in Stamford, Conn., with the company logo prominently
displayed to drivers enduring the traffic on Interstate 95.
| Information, please |
| The
newspapers are history. Today's Thomson sells "workflow solutions" --
information and analytics that help professionals in four major fields
make better decisions. |
|
Market group |
Products include |
No. of employees/
No. of countries |
2005 revenues ($bill.)
(% increase) |
2005 operating income ($mill.)
(% increase) |
Legal & regulatory |
Westlaw, Westlaw Litigator |
17,300 employees/
22 countries |
$3.5
(7%) |
$982
(9%) |
Learning |
Thomson Delmar Learning, Thomson Gale, Thomson Prometric |
9,400/
39 |
2.3
(7%) |
250
(7%) |
Financial |
Thomson ONE, Thomson TradeWeb |
8,700/
22 |
1.9
(9%) |
334
(14%) |
Scientific & healthcare |
Thomson Pharma, Delphion, Derwent World Patents Index |
4,700/
26 |
1.08
(14%) |
235
(21%) |
| |
|
Total: |
$8.7
(Up 8%) |
$1.46 bill.*
(Up 9.8%) |
*Reflects corporate expenses and amortization
Source: Thomson Corp. |
Transactions have also been the means for achieving the
current business mix. (See table.) The Thomson Financial market group,
for example, is the product of 41 acquisitions so far, from Technical
Data Corp., purchased in 1980, to Global Securities Information Inc.,
bought last year. Similarly, West Publishing (acquired in 1996),
Information Holdings Inc. (2004) and Capstar (2004) are now part of the
market groups in legal and regulatory, science and healthcare, and
learning, respectively. Major divestitures, meanwhile, have included
the sale of Thomson Travel for $2 billion in 1998 and the sale of the
company's community newspaper assets in North America for about $2.5
billion in 2000.
In 2003, Thomson completed its exit from the newspaper business by
selling its 20% interest in Bell Globemedia (which included its piece
of Toronto's Globe and Mail) to Woodbridge, the family holding company,
for $279 million. At that point Harrington and CFO Robert Daleo, who
together had previously led the Thomson Newspapers unit, were running a
company that was fundamentally changed from its newspaper days.
Revenues came increasingly from electronic products, software and
services. Today the proportion is 70%. "The idea is to shift resources
to what offers a greater upside," says strategy chief Benson-Armer, a
native South African whose resume includes a ten-year stint at McKinsey
& Co. Lately, the upside has looked especially promising; for the
first quarter of 2006, revenues were up 7%, to $1.93 billion, and
operating profit was up 19%, to $143 million.
The four market groups vary in maturity, culture and size; Science
and Healthcare, the smallest, is also the fastest grower, posting
top-line growth of 14% last year. The same strategic themes
predominate, though: gathering and integrating more and more
information and analytic capabilities, and working more and more
closely with customers. "We want to enable professionals to take better
decisions, faster," Benson-Armer says. It's a simply stated goal with
many operational implications -- not least for Stanley's legal team.
"Now," she says, "our business faces very complex legal challenges and
risks."
The legal complexities range from managing intellectual property
rights to antitrust and liability issues to a big increase in the size
and scope of the customer relationships. Just how large the customer
contracts can get was demonstrated in 2002, when Thomson signed a $300
million, five-year deal to develop and implement a new financial
workstation for Merrill Lynch Financial Advisors. "We really wanted
that one," says Darren Pocsik, who left a job as an M&A lawyer at
Jones, Day, Reavis & Pogue to join Thomson in 2000 and was group
general counsel for Thomson Financial at the time of the Merrill deal.
"I spent more than half my time working on that one project. The good
news is, we eventually won it."
From a legal standpoint, such deep customer relationships start to
generate some of the issues that arise in joint ventures. "A lot of the
time," says Stanley, "we're working directly with their tech people to
develop something that integrates very seamlessly into their workflow.
Now, what aspect of that is theirs, and what aspect is ours? The IP
issues in particular can be really challenging. And the improvements
going forward: What is it that you're entitled to, versus what you'll
have to pay for?"
In healthcare, liability issues come to the fore. "We have databases
that are being used in hospitals," says Stanley. "Doctors and nurses
are relying on them to determine which drug to use. Sometimes we're
developing the content, and other times we're licensing the content
from another company. We have all kinds of back-end processes to ensure
that the content we've developed is accurate. And we must be sure that
our content providers also exercise that same level of care, and we
have to avoid exposure if, God forbid, they make a mistake."
The healthcare operation also has to stay on the right side of
privacy laws. Thomson's MedStat service, for example, tracks sensitive
employee healthcare information for corporations and hospitals. Good
compliance systems are a key part of the business.
The list goes on, but you get the idea. These and other
legal-operational issues are bound to figure prominently in any
acquisitions, which is why it is now the general counsels at market
group level who most often take the lead in executing deals. Before
Stanley arrived, by contrast, a corporate-level legal group serviced
all the businesses, knew each of them less well and tended to be far
more reactive than someone who sits on the market group's executive
council, as each of the GCs now do.
The GCs report to Stanley, but with a strong dotted line to
the market group CEOs. They can raise issues early: If the target is
licensing in a particular piece of technology, what are the limitations
on Thomson's ability to fold that technology into a suite of products?
How will change-of-control provisions in the target's customer and
supplier contracts affect a deal? During due diligence, the GCs can
more accurately gauge risks such as pending litigation or, perhaps, tap
the in-house IP expert at corporate level for help in assessing the
value of a particular patent. Also, once the deal is closed, the market
group GC knows he or she will live with the judgments that went into
it.
The deal issues that Stanley tends to wrestle with, meanwhile, are
the relative few that need to be handled at the corporate level. Many
of the market group deals aren't big enough to warrant her involvement,
but acquisitions above a certain size -- particularly if they involve
public companies -- definitely do. In those cases, Thomson is more
likely to look to outside counsel for expertise in securities law, say,
or just to supplement its internal resources. Stanley will be involved
in selecting outside counsel, and also in anything to do with
regulatory relationships, mainly with the Securities and Exchange
Commission and antitrust authorities.
Regulatory relationships need corporate-level oversight. "On the
antitrust side," Stanley says, "I need to understand the arguments
we're making as to why a deal or any other transactional matter isn't
anticompetitive. The markets where we play are complex, and we are one
of the big names. So we expect that from time to time, the DOJ may
review one of our transactions simply because at a high level, it
sounds like the businesses at issue are in the same market. Our
approach is to go before the regulatory authorities with a certain
intellectual honesty that hopefully gives them the confidence that
their concerns have been fully evaluated and either aren't an issue or
can be addressed."
Thomson's $441 million acquisition of publicly traded Information
Holdings Inc. in 2004 spotlights how the company has come to approach
all these matters (see box). Besides adding IHI to the scientific and
healthcare group that year, it augmented the financial group's
offerings with the $535 million purchase of TradeWeb Group LLC, a big
online bond-trading platform. Total acquisition spending in 2004 was
$1.5 billion. Since then the pace has been slower but still steady; the
total was $289 million in 2005, and CEO Harrington projects $200
million to $500 million worth of deals this year.
The "portfolio optimization" (as Thomson terms its divestiture
program) continues as well. Four properties, including American Health
Consultants and the U.S. operations of Thomson Education Direct, were
put on the block in February. Though they combined to produce $180
million in revenues last year, they didn't fit comfortably into the
workflow-solutions strategy. Just last month, Thomson announced that it
had completed the sale of Law Manager, and intended to sell Lawpoint,
from the Legal & Regulatory group. Together, those two properties
had sales of about $40 million in 2005.
Outsourcing initiatives are another aspect of Thomson's
transformation -- and another big task for the legal team. In February
2005, the company struck a five-year deal with Hewitt Associates to
provide human resource services for Thomson's 28,000 employees in the
U.S. Steve Moll, Thomson's senior HR lawyer, naturally played a key
role here, says Stanley. "We had to have a lawyer who was right in the
middle, to kind of translate what it is we're trying to achieve," she
says.
For all the activity to date, Thomson's leaders reckon they're just
getting started. The company is operating in markets that, as
Harrington defines them, add up to more than $80 billion in sales a
year, and are still growing well. So even though Thomson is already No.
1 or No. 2 in many of those markets, it still sees major opportunities
out there. Especially attractive is the developing world -- including
China, where Benson-Armer points to rapidly increasing numbers of
lawyers, pharmaceutical researchers and other knowledge workers.
Acquisitions in China are possible, though some sectors that are
attractive to Thomson are still closed to foreign investors. Elsewhere
around the world the deals are sure to continue, with the teams
assembled to do them staffed for local conditions. One notable
difference (at least so far) is in the way the legal team handles
international deals."We rely much more heavily on outside counsel,"
Stanley says.
Thomson's strategic vision is a journey, not a destination,
Harrington says. Given the rapidly evolving worlds of knowledge work
and information technology, it could hardly be otherwise. There will be
more than a few things to figure out on the way.
One key question has to do with the mix of acquisitions and
home-grown innovation. As the market groups build scale, will they be
able to stay as close to customers as the entrepreneurs who started
many of the companies Thomson has bought to date? The answer will
figure in the activities of the legal team, and the rest of the
knowledge workers who are moving Thomson forward.
But here's a safe bet: They're bound to be busy.
Acquiring and absorbing a mini Thomson
It wasn't a coincidence that Information Holdings Inc. was a sort of
microcosm of Thomson Corp. The CEO, Mason Slaine, was a former Thomson
executive who built IHI through multiple acquisitions, taking it public
in 1998. By 2004, the fast-growing company was generating $81 million
in revenues from a loose collection of businesses such as MicroPatent,
an intellectual property information service, and IDRAC, a global
regulatory database for the pharma industry.
Likewise, it made a lot of sense for Robert Cullen, CEO of
Thomson Scientific and Healthcare, to have his top team keeping an eye
on IHI. Its assets were highly attractive, and its investors were
likely to be looking for an exit at some point. "We spent many a late
night with our senior executive team talking about the business,"
recalls Darren Pocsik, general counsel for TSH. One topic: How nicely
MicroPatent and IDRAC would fit into the comprehensive Thomson Pharma
service then under development. "We started running models and giving
some thought to what an acquisition would look like," says Pocsik. "So
that when we got an inkling that they were hiring a banker and they
were going to be in play, we were extremely well prepared."
The head start came in handy, because by late May of 2004, when IHI
publicly confirmed that it was "evaluating strategic alternatives,"
things were moving pretty fast. If Thomson was going to prevail in what
was shaping up as a highly competitive auction, there would be a lot
more work ahead for everyone on the team, from Shahir Kassam-Adams,
TSH's senior vice president of strategy and development, to the outside
counsels Thomson retained at Covington & Burling and Shearman &
Sterling LLP.
Diligence was no picnic. Slaine did a good job of controlling access
to people and information, Pocsik recalls -- simple prudence on the
seller's part, since IHI was, after all, shopping itself to
competitors. Who were the other bidders? Reed Elsevier Group plc and
Wolters Kluwer were probably among the leading contenders, says Pocsik.
Most of the PE buyers, he thinks, dropped out over the economics. Soon,
IHI told TSH it wanted to hammer out a deal -- fast. "We stayed up for
two and a half days straight negotiating a purchase agreement so that
it could get presented to their board on a Sunday evening and we could
sign early Monday morning before the markets opened," he says.
On June 28, the two companies announced that Thomson was buying IHI
for $441 million. That was a milestone but not the end of the journey.
There was an antitrust review to clear; Shearman & Sterling took
the lead on that. Meanwhile work that began during the auction or even
before -- involving employment contracts, supplier contracts, customer
contracts, the tax inefficiency of IHI's multiple legal entities, among
other things -- took on a new urgency. "We paid a fair price, but
nonetheless it was a lot of money, and we needed to quickly execute on
our integration plans in order to drive growth," says Pocsik.
Actual integration got going in November 2004, once the deal closed.
It was led by Steve Quinn, a veteran Thomson Scientific business
manager.
In the end, Thomson was able to pay the most for IHI because its
executives believed they could do the most with the assets. When the
deal was announced, Thomson CEO Richard Harrington talked about a
"seamless integration" of IHI.
Some of the integration is ongoing. Thomson Pharma, off to a good
start since its introduction in 2005, is slated to get three new
modules next year, incorporating content and tools from various
acquisitions. In the second quarter, customers should see a new
regulatory affairs offering -- based on the IDRAC database gained in
the IHI deal. - Kenneth Klee
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