LONDON-BASED hedge fund The Children’s Investment Trust (TCI) has quietly bought a 1.4% stake in Reuters, the financial-information giant that is in the middle of an £8.7 billion takeover by Canadian rival Thomson.

The activist manager bought 3.4m shares in Reuters last week through contracts for difference (CFDs), taking its total stake to 17m shares, according to a regulatory filing. CFDs are financial instruments that give a buyer a stake in a company, but no voting rights.

TCI, which kickstarted the battle for ABN Amro by buying a stake and using it to demand a break-up of the Dutch bank, has become one of the world’s best-performing investment houses by building big holdings in companies to force deals or management change.

TCI refused to comment, but sources close to the fund speculated that the position had not been taken to break the merger with Thomson, agreed last month, but rather to take advantage of a potentially lucrative arbitrage between the value of the Thomson bid and the current Reuters share price.

BACKGROUND

• Hedge fund takes stake in Reuters

• Reuters chief to receive £27m after takeover

• Thomson and Reuters agree £8.7bn takeover

• Thomson cashes in on learning division

• Bid likely to cap Reuters at £8.8bn

Has Reuters chosen the right way?

The deal with Thomson marks a shift away from Reuters' roots in journalism and into a future of financial analytics

Related Internet Links

• Reuters company information

• Reuters share price chart

• Reuters forecast

Last week Reuters’ share price was 11% below Thomson’s offer price. The discount is due to concerns that the deal could be delayed or even scuppered by competition authorities on both sides of the Atlantic.

The proposed merger will create a powerful duopoly of two of the current three global information companies, leaving just Bloomberg in competition.

But if the deal goes through, TCI stands to make a profit of about £12m on a leveraged investment of £112m.

Chris Hohn, the fund’s founder and manager, has established a reputation as the scourge of underperforming continental groups.

He came to prominence in a brutal battle in 2005 with the management of Deutsche Börse, the German stock market.

TCI eventually rallied investors to thwart Deutsche Börse’s plan to take over the London Stock Exchange, ousting the German group’s chief executive, Werner Seifert.

The affair made Hohn a hero in the London hedge-fund community, though his strategies usually involve investing for the long term.

The combined Reuters/Thomson entity – which would have 50,000 staff and has promised more than $500m (£250m) of annual synergies within three years – is set to net Reuters chief executive Tom Glocer £27m.

A further £342m windfall would be shared among 11,000 other staff at the 156-year-old financial-information company.

On February 21, Hohn sent TCI’s now famous letter to Arthur Martinez, chairman of ABN, attacking the bank’s management.

TCI’s letter had an electric effect, driving ABN’s shares up by 8.7% in just three trading days. A few weeks later, Barclays made its approach for ABN.

TCI was set up in 2003 by Hohn and a small group of investment managers. The hedge fund is unusual because it gives a share of its earnings to charity. The money flows through The Children’s Investment Fund Foundation, run by Hohn’s wife, Jamie Cooper-Hohn.

Reuters’ shares closed at 638p on Friday, up 1.55% on the day.

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