(Our exclusive intelligence reports are based on company sources, public SEC documents and industry consultants following the print and publishing industry. At times, it is necessary to quote unnamed sources. As a tradeoff for protecting sources, we are able to reach beyond the surface and gain a deeper understanding of key issues impacting the industry. If you have any questions about this story, please contact us.) 10.08.01 - (WhatTheyThink.com) At DRUPA 2000, AGFA and Autologic executives held their first face-to-face meeting to discuss a possible deal that would have AGFA own the smaller prepress manufacturer. On September 26, 2001, AGFA announced they would acquire Autologic Information International for $42 million. Autologic manufactures and markets computer-based electronic prepress systems to the publishing industry. The deal includes Xitron, a wholly owned subsidiary of Autologic. Xitron sells workflow software for smaller print and prepress businesses. Volt Information Sciences owns most of Autologic with 59% of the stock. Under the two-stage transaction, a newly formed subsidiary of AGFA Corporation is to make a cash tender offer for all outstanding shares at $7.127 per share. The offer will be followed by a back-end merger of AGFA Corporation's subsidiary with Autologic. The transaction is expected to be completed before January. Autologic’s CEO, William Shaw said the offer was fair and a premium above their current stock price. "Our Board concluded that the transaction is fair to, and in the best interests of our stockholders." AGFA’s CEO, Ludo Verhoeven said the deal shows their commitment to the print and publishing industry. “The focus of AGFA's Graphic Systems Business Group is on the commercial, newspaper and packaging printing industries. Autologic's customers, products and resources fit perfectly with our strategic objectives." Putting It Together Autologic has been a partner with AGFA since the mid 90’s. The company sold chemical processing units and film imagers made by AGFA. Autologic machines also use AGFA film and plates which Autologic promoted and marketed to some degree. Formal discussions between AGFA and Autologic started during DRUPA in May of 2000. DRUPA is one of the world’s largest trade shows for the print and graphic arts industry. AGFA had already decided to target Autologic as an acquisition candidate prior to the show. Etienne Van Damme, Senior VP of Business Development of AGFA's Graphic Systems Group was AGFA’s point man in the deal. He made the first contact with Shaw and arranged a meeting with key Autologic executives who were to attend DRUPA. Among the topics discussed was AGFA's desire to have Autologic distribute their photographic plate products. During the last two years, AGFA moved just $700,000 of products through Autologic. In June, Van Damme and Shaw met to further talk about the possibility of an acquisition. James Groberg also attended this meeting. He is CFO and a director at Volt. Two more meetings were held before the end of the year and it became clear by the end of 2000 that “Volt was very much in favor of selling Autologic.” Volt’s primary business is providing staffing services and communication systems for its Fortune 100 customer base. By April 2001, negotiations heated up. Several meetings took place. AGFA included their Newspaper VP, Jack Knadjian and Marc Elsermans, General Manager of AGFA’s Graphic Systems Group. Activities involved meeting with Autologic’s investment banker, “deep discussions about Autologic's profitability or lack there of” and trips to different Autologic locations by AGFA executives. During the summer, Autologic became confident that AGFA would do the deal. Shaw instructed Autologic’s investment banker, Morgan Lewis Githens & Ahn to shop Autologic to other interested parties. There were no other serious takers. One source said the shopping of Autologic was more customary and obligatory to appease shareholders than a real search for another bidder. AGFA had already said their deal would be an all cash offer which was very attractive to Volt and Autologic. Autologic had their buyer. On September 24th, AGFA’s board unanimously approved the merger. On the same day, Volt as the majority owner of Autologic voted to approve the deal. Meeting later in the day, Autologic’s board approved the acquisition. Marc Elsermans, of AGFA's graphic systems business group had this to say. "Autologic computer-to-plate and computer-to-film systems have earned an excellent reputation for reliability and productivity. The company's loyal and long-standing customer base, especially in North America, adds to AGFA's strong presence in Europe. Autologic's newest developments in production workflow software and output systems augment and complement AGFA's.” A Life Saver for Autologic Sales at Autologic were $81 million in 2000. Last quarter, revenue dropped 20% blamed mostly on a dramatic reduction in equipment sales. So far this year, sales are down 11%. The company has reported a net loss of $604,000 for the first three quarters of 2001. Several industry experts described the transaction as a life saver for Autologic. Since the spin off of Autologic by Volt, Autologic’s stock price has nose-dived. Without consumables and a worldwide support network, the company was in risk of being pushed out of the market by AGFA and others. Here’s what Autologic told shareholders last year: “As a result of intense competition, as well as changing patterns of customer purchasing which have produced an industry-wide trend toward the purchase of standard systems, the industry, including Autologic, has experienced downward pressure on profit margins on sales of equipment and software. Some competitors sell their products as complete pre-press systems, for some of which (Autologic) has no competing systems. Other competitors grant significant sales price discounts of their products which compete with our products in order to promote sales of ancillary products as to which (Autologic) has no competing product.” For AGFA, their graphics business is their jewel. It contributes 39% of the company’s sales. (AGFA also has a healthcare and industrial imaging business.) At PRINT 01, AGFA said computer-to-plate revenue grew by more than 60 percent as compared to the first six months of 2000. Specifically, hardware sales grew by more than 80 percent, while its digital plate revenues grew at 60 percent. In the newspaper segment, AGFA‘s imagesetters, platesetters, workflow management systems, film and plates have met with considerable success - mostly in Europe. Major publishers such as Associated News, The Financial Times and the Wall Street Journal Europe installed AGFA‘s digital platesetters, plates and Intellinet workflow management systems. The German media group WAZ equipped its four printing plants for seven newspapers – with a total of 180 regional editions – with the latest AGFA digital computer-to-plate systems, and AGFA printing plates. The Peanut Gallery Was this a good deal for AGFA? One industry consultant said even if AGFA closed down Autologic, they still got a good deal by accessing Autologic’s customers. “It would have cost AGFA much more than $42 million to reach these companies and establish a relevant share of the US market - much less turn them into clients.” Another prepress analyst agreed. “They would have to try hard to mess this up. If AGFA could just do the basics like keep key sales people and distribution channels, they would get their $42 million back in 12 to 18 months assuming a reasonable economic recovery in the US.” Autologic has 370 full-time employees, of which an estimated 272 were based in the United States and Canada and 98 were based in international offices. Of these employees, 54 were engaged in research, product development and engineering; 62 in sales and marketing; 119 in customer support; 83 in manufacturing; and 52 in administration. No one we spoke with seriously thinks AGFA purchased Autologic only for access to their clients, but the point is well made. AGFA will most likely use some of the technology and machines in their own accounts. For example, Autologic’s APS 3850 SST Wide Laser Imager is a high-speed capstan device that produces 168 broadsheet or doubletruck tabloid pages per hour at 1000 x 1000 dpi. Many customers swear by the 3850 model. Phil Spencer, Operations Systems Support Manager at the Orlando Sentinel was to take delivery of one in September. “We recognize that the 3850 is the de-facto standard in the newspaper industry today. Given that its specifications met or exceeded all of the competitors boxes and the consistently good comments made by existing customers, we believe the 3850 SST Wide is the right box for our current needs.” The only sure bet going forward is that AGFA will aggressively penetrate Autologic's customers. While AGFA is waiting on the economy to turn and equipment sales to come back, they’ll be busy selling graphic film and plates to Autologic’s 1900 clients.