Telerate And Dow Jones Disagree On TTS' Value

At the heart of Dow Jones & Co.'s tender offer tussle with Telerate Inc. is a difference of opinion over the potential of the Telerate Trading Service (TTS), according to sources close to the deal. TTS is an automated interbank foreign exchange trading system developed by Telerate's Global Transactional Services (GTS) partnership with AT&T.

Dow Jones' $18/share tender offer price for outstanding Telerate shares assumes overall 1990 revenue growth of 12%. Telerate's own estimates are closer to 20%. The eight percent gap between the two estimates is largely attributable to the goose egg Dow Jones projects for TTS revenues through 1990, sources say.

For Dow Jones to express a lack of confidence in the future of Telerate's fledgling foreign exchange dealing service can only serve to exacerbate an already touchy situation. Both Telerate president Neil Hirsch and a group of institutional investors have rejected Dow Jones' $18/share bid as inadequate. Dow Jones needs to acquire 90% of Telerate shares in order to effect a short form merger, under which the companies can merge without a vote by Telerate stock holders and without action by the board.

In the tender document, Dow Jones says it is pursuing remaining Telerate shares because it "believes that the full ownership of the company will facilitate even closer and more efficient working relationships..." But the attempt to pick up outstanding Telerate shares on the cheap, especially those in the hands of Hirsch and other top Telerate executives, could well have a disruptive effect on relations between the companies.

Telerate has invested over $20 million in fixed assets for TTS since the inception of the Global Transactions Services Co. joint venture with AT&T. Telerate's share of the losses of GTS are said to amount to more than $10 million over the first half of 1989. Telerate claims that many of its more than 250 installations for TTS have been converted to paying customers.

Telerate and AT&T are close to reaching agreement on the terms under which Telerate will buy out AT&T's interest in GTS. Sources say Telerate will pay AT&T approximately $20 million in cash and notes as well as royalty payments on sales of TTS.