Thomson Reuters report on a cosolidated basis. It generates approximately $16KB

Question

Thomson Reuters report on a cosolidated basis. It generates approximately $16KB worth of annual revenues. It recently entered into venture with annother firm (Blackstone) to create a new company in which Thomson Reuters would hold approximately 45% of the stock of NewCo; and Blackstone would hold 55% of the stock (of the NewCo). Thomson Reuters then sold one line of business that typically generated about $8B of revenues to Thomson Reuters for approximately $20B.

Since Thomson Reuters no longer owns the former business and its not controlling owner of the NewCo how will this likely impact Thomson Reuters going forward. It has $20B in cash but did it completely lose the revenues of the old company? How does the equity method of accounting present the new relationship? What is the impact of this deal to Thomson Reuters?

Explanation / Answer

1) Although Reuters has sold the business to NewCo with cash $20B with him and is not only owner of the company and controller of business, but he has the equity investment of 45% in the NewCo., so it owns 45% of the control and earnings portion of the NewCo. Thus, has not completely lose the revenues of the old company.

2) The equity investment method has relationship as : Reuters holds the 45% of the ownership of the NewCo in the equity or ownership investment. Reuters can book 45% of the Net Income of NewCo to its Equity Investment account and credit the same with the amount of dividend received from NewCo.

3) The deal has provided Reuters with a cash of $20B on his balance sheet along 45% share in the business sold to NewCo and earning of the company.

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