Telerate Buys Canada's CMQ For US $75 Million, Blocking Thomson Bid And Adding Equities To Arsenal

As expected, Telerate, Inc. has acquired Toronto-based quote vendor CMQ Communications Inc. (MTR, October 1987). The purchase price was US$75 million. While both firms crow about strategic fit, Telerate's underlying motives for the deal were more defensive than offensive, and the company now seems a bit perplexed about exactly what to do with its new possession.

"Obviously the significant strategic motivation" for the deal, says Telerate vice president and general counsel Steven Rappaport, is that "it expands the products we can offer on a worldwide basis." Obvious as that may be, however, the real motivation of Telerate -- and most likely of its 56-percent owner Dow Jones & Co. -- was to keep CMQ out of the hands of International Thomson Organization, Ltd. (MTR, July 1987)

Although CMQ's 10,000+ screens make it Canada's largest quote vendor, and although its technology is well-regarded, CMQ found itself a pawn in a much larger game involving giant international information publishers and markets. Its principal asset, from the standpoint of Thomson and Dow Jones, wasn't its user base or its technology, but its unique agreement for redistribution of Telerate data in the U.S. and elsewhere (MTR, May 1986).

Given what Dow Jones has paid for Telerate shares lately (MTR, October 1987), it was unconscionable to let broad rights to the same database fall into competitive hands for a pittance. Thomson bid C$100 million for CMQ contingent upon the Telerate deal remaining intact. Telerate, it appears, found that the only way to bust up the deal was to buy the company outright at an equivalent price.

But however defensive its motivation, Telerate does achieve certain benefits. For one thing, it gets back another piece of its foreign distribution. CMQ has exclusive Canadian rights to sell Telerate service until the mid-1990s, and Rappaport says Telerate sales account for more than half of CMQ's profits. The company had US$18.9 million in sales in 1986 and forecasts US$27 million for 1987. Telerate also gets an operational North American exchange ticker plant and workstation technology that allows exchange data to be substituted for scrolling news at the bottom of a Telerate page.

This hybrid equities/fixed-income service is in use by 35-40 percent of CMQ's U.S. customers, says CEO Henry Becher, and will be the lead product for rolling out CMQ's service beyond North America. A London operation will be established "in short order" to serve Europe, he says. CMQ's North American operations probably will remain status quo for the foreseeable future, but overseas efforts will be handled directly by Telerate. "Outside North America Telerate is in a much better position to take what we've got and integrate it with theirs," he says.

Telerate's Rappaport is bullish on the prospects for selling North American equities data to fixed-income and foreign exchange traders, particularly at smaller customers overseas where the same trader may be dealing in more than one market. Nonetheless, it's an uphill climb. Although the total number of quote terminals outside North America is roughly the same as the number in North America, 80 percent of the screens showing NYSE last sale prices are in the U.S. and Canada.

One of the grander ironies of the CMQ acquisition is that Dow Jones for the first time finds itself the majority owner of a flesh-and-blood equities quote vendor. This is a field it has eschewed for decades, but probably could have dominated had it decided to get in during the early days of the 1960s.