By Pamela Barbaglia
LONDON (Reuters) - U.S. private equity firm Blackstone Group LP <BX.N> is in advanced talks to buy a stake of about 55 percent in Thomson Reuters Corp's <TRI.N> <TRI.TO> Financial and Risk business, a deal that would value the unit at around $20 billion including debt, according to three sources familiar with the matter.
Thomson Reuters' board, the sources said, is expected to meet on Tuesday to discuss Blackstone's offer for the F&R business, which supplies news, data and analytics to banks and investment houses around the world. The unit contributes more than half of Thomson Reuters' annual revenues.
Under the terms of the proposed deal, Thomson Reuters would retain a 45 percent stake in the F&R business as part of a partnership with the U.S. buyout firm, according to the sources.
The deal would be structured to pay more than $17 billion to Thomson Reuters, for a unit with an enterprise value - a measure of total value that includes equity and debt - of about $20 billion, two of the sources said. That $17 billion would include about $4 billion in cash from Blackstone and about $13 billion financed by new debt taken on by the new F&R partnership, the sources said.
Thomson Reuters said in a statement late on Monday that "it is in advanced discussions with Blackstone regarding a potential partnership in its F&R business." The company gave no more details. A spokeswoman for Blackstone declined to comment.
The sources cautioned that a deal had not been finalized and could still fall apart. They declined to be identified because the negotiations are confidential.
Thomson Reuters' New York-listed shares were up 8.5 percent at 1715 GMT, touching their highest level since October, while Blackstone shares were down 1.9 percent.
If the board agrees to a deal with Blackstone, it would represent the biggest shake-up of Thomson Reuters since it was formed a decade ago by Thomson Corp's acquisition of Reuters Group. Canada's Thomson bought London-based Reuters for 8.7 billion pounds in 2008, worth $17 billion at the exchange rate at the time.
Reuters was unable to determine who would lead the new division.
Thomson Reuters would hold on to its Legal and Tax and Accounting divisions as well as its international news service, Reuters News, which supplies news to F&R's flagship desktop software product Eikon, the three sources said.
As part of its offer, Blackstone has said the new F&R company would make annual payments of $325 million for 30 years to Reuters News to safeguard that business's growth prospects, according to two of the sources.
The level of the proposed payments would amount to almost $10 billion over three decades, the sources added.
Thomson Reuters, which does not disclose how much F&R currently contributes to Reuters revenues, declined to comment on specific terms of the proposed deal.
It is unclear how the proposed deal would be viewed by trustees of the Thomson Reuters Founders Share Co, which was set up to oversee Reuters' editorial independence when the company was first publicly listed in the 1980s.
The trustees approved Thomson's deal for Reuters a decade ago. Thomson Reuters Founders Share Co Chairman Kim Williams did not respond to requests for comment.
Blackstone's proposed investment, if finalized, would mark the buyout firm's biggest deal since the global financial crisis and put it in direct competition with Bloomberg LP as well as News Corp's <NWSA.O> Dow Jones division in selling data services, analytical and trading tools to Wall Street.
Blackstone has some experience in the information business. It bought Ipreo, which sells specialist software for tracking capital markets' activities in 2014 for just under $1 billion.
Canada's Thomson family controls more than 63 percent of Thomson Reuters shares through Woodbridge Co Ltd. The news and data provider has a market value of about $31 billion and its shares trade on the New York and Toronto stock exchanges.
Two of the sources said minority investors in Thomson Reuters, who hold the remaining 37 percent of stock, were largely in favour of the proposed deal.
Since its creation in 2008, Thomson Reuters has carried out more than 200 acquisitions, but has struggled to integrate some of the assets it took on, especially in its F&R division, which was hit hard by the financial crisis.
Growth in the business has slowed as banks and brokerages shrank in the face of weak trading. But amid tougher regulations around risk-taking, the regulation and compliance business has been a bright spot.
To streamline its business, Thomson Reuters has reduced the number of products within its F&R segment while shrinking its workforce.
"The progress we have made turning around the F&R business and its future potential are reflected by Blackstone’s interest," Thomson Reuters Chief Executive Jim Smith said in a staff memo. "We believe F&R is well positioned within Thomson Reuters, but it could be even stronger with a partner like Blackstone."
The company has also sought to sell non-core assets, including its intellectual property and science business, which it sold to private equity firms Onex Corp <ONEX.TO> and Baring Private Equity Asia for $3.55 billion in 2016.
Before news of the Blackstone talks, Thomson Reuters' New York-listed shares had declined 3.4 percent over the previous year, underperforming the benchmark S&P 500 Index <.SPX>, which had risen more than 24 percent in the same period.
(Additional reporting by Dan Burns in New York; Writing by Carmel Crimmins; Editing by Tiffany Wu and Pravin Char)