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Industry Insight

RR Donnelley's Interest in Acquiring Quebecor World

More at R.

By Adam Dewitz
Published: May 27, 2009

More at R.R. Donnelley’s Bid for Quebecor World

There has been a lot of buzz around water cooler since RR Donnelley indicated its interest to acquire Quebecor World's Assets on May 14th.

I don't see anything stopping this deal from going through. There might be a few bumps along the way if a large book publisher or magazine publisher files a anti-trust complaint or the FTC takes issue as they did in 1990 with RR Donnelley's acquisition of Meredith Corporation. But I would be surprised if that stopped the deal. RR Donnelley would not create a monopoly within the printing industry by acquiring Quebecor World.

When the plan goes through we should expect to see Quebecor World equipment shifted around and plants closed. Unlike RR Donnelley, Quebecor World is not known for their research and development and investment in emerging technology. Many of the "assets" acquired will be obsolete to the new owner.

Frank Romano dedicated his weekly video column to address questions he has been receiving from the financial press. Here's what Frank has to say on this topic:

There are a lot of opinions on this deal, what's yours? Is this good or bad for the printing industry or for large publishers that rely on large printers?



By Larry Bauer on May 27, 2009

I'm sure RRD would like to raise prices, but it will be interesting to see if capacity can be reduced faster than price reduction pressures caused by diminishing demand and competition from other media. Think of how difficult it has been for paper companies over the years to get price increases. One clear advantage they will have, in my opinion, is in distribution, where volume is everything. They will also have some distinct global advantages in serving multi-nationals. It should be an interesting chapter in print's history. Just hopefully not the last chapter.


By Tom McNeal on May 28, 2009

Lets Face it this is the start of a down size of the print industry.


By Clint Bolte on May 29, 2009

Despite acquiring long term contracts from publishers that have negotiated some very low prices, this acquisition will impact RRD's P&L much like "tuck ins" have for regional printers. Opportunity capacity at quite efficient web plants throughout the RRD network has been created by shrinking advertising resulting in fewer pages and therefore fewer printed forms. RRD will balance out capacities at their most efficient plants as the "low hanging fruit" of this transition. No additional employees will be needed though select CSRs may be brought over from QW. The isolated few modern presses from QW will be consolidated to handle the remaining volume of work. Very few QW employees would be expected to be retained. They are simply not needed. Publishers will witness extraordinary service and will logically expect some price increases at renewal time.

All in all a very healthy move for the printing industry. At renewal time several large regional web publication houses should get the opportunity to pick up additional volumes. Probably at slightly higher prices than the bottom feeding QW contracts.

Quad will possibly benefit not because of low printing prices, which have always been "firm and fair" but because of their distribution network which adds value and delivery certainty (relatively speaking).


By Michael J on May 29, 2009

Thank you for the clear and perceptive comment.


By Terry Tevis on May 29, 2009

While QW former management failed to invest in press technology similar to RRD or Quad early in this century, over the past 3 years this new team did much to rectify the base manufacturing capabilities. While not the low cost producer of RRD or Quad, the 22 manroland presses over the past three years did much to bring its cost and productivity in line.

With gravure being less of a factor each year except in packaging, the combined offset platform will keep prices going down for publishers on each renewal. Printers are not competing with other printers for content, it is the Internet so prices must continue to be reduced for publishers straining to keep print relevant. The Sunday presses and other gains in digital will keep productivity gains ahead of price reductions. Wall Street demands the 13%-15% EBITDA margins to support the stock and dividend. RRD has been at that level for the pat 10 years and this deal will keep it there. The QW sales team was always solid; it was the poor Montreal leadership following the acquisition of World Color that led to the recent bankruptcy. Best of breed from CSR and Sales from both RRD and QW will provide the customer even better service and take redundant costs out of the two platforms.

Like it Banta acquisition, RRD is using acquisition dollars rather than capital budgets to add productive manufacturing plants that are in close proximity to its existing locations. Eliminating the 1990’s tired iron (32 page presses), shutting down some QW or RRD plants and combining the iron into the better locations will bring solid productivity gains to the Donnelley platform.

Lastly, no publisher or DM Company will fight this. There are still too many $100MM plus regional printers that can do any of the offset work found at QW or RRD, and we still have a very good Quad and Brown out there as well. Books may be the only real issue and if need be, RRD could spin off this segment and use the gains to reduce debt.


By Nick on May 29, 2009

bottom line is that people will lose their jobs, the same thing happened to me when schawk bought out Seven..and look at schawk now, is it in a better place after the buy out?


By Clint Bolte on Jun 01, 2009

Terry, I acknowledge the unusual MAN stable of thoroughbreds.

However, there is an unusual problem anticipated with the leases on this equipment. QW's annual reports have indicated in recent years that they have been pegged with several millions of dollars of fees at the conclusion of their leases. Hence, it would be expected that these MAN leases would be similarly structured.

The overall objective was to have the lowest possible annual lease payments.

I understand that this can only occur with the following set of circumstances: (1) negotiate the lowest conceivable principal investment price (not hard to achieve with the qty of presses purchased and the soft capital markets at the time), (2) push the lease period out as far as possible, and (3) negotiate the highest possible end of lease fair market value on the assets. (The issue of the lowest % of financing is actually relatively a mute point.)

The result is rear-end loaded leases. The only protection the Leassor has is to (1) stipulate fees if the equipment has not been maintained well and/or contracted fair market value cannot be achieved and/or (2) tie the manufacturer back into the risk since they are the ones benefiting most from the original sale and potentially may be the most logical purchaser of that much equipment at the end of the lease.

Nothing has ever been discussed in the trade press about this later issue being true or not. Of course neither QW or MAN wants to broadcast that fact if it were true.

This is not how RRD (or any other printer with a longer term perspective) typically chooses to do business. And we may never really learn without reading the RRD balance sheet footnotes around 2016 or so.


By Ed Patter on Jun 02, 2009

RRD just filed for bancruptcy. Doesn't that throw a wrench into this?


By Adam Dewitz on Jun 02, 2009

Ed - It was R.H. Donnelley that filed for bankruptcy (http://members.whattheythink.com/news/newslink.cfm?id=37110" rel="nofollow">
R.H. Donnelley Files for Bankruptcy to Reduce Debt). Though both companies share a common past they are separate.


By Adam Dewitz on Jun 03, 2009

Check out Dead Tree Edition's http://deadtreeedition.blogspot.com/2009/06/q-on-donnelley-quebecor-world-deal.html" rel="nofollow">Q&A on the Donnelley-Quebecor World Deal


By Erwin Hudelist on Jun 03, 2009

Donnelley and Quebecor are so different in corporate personalities that this will likely be a failure - like Daimler and Chrysler.


By Clint Bolte on Jun 04, 2009

If RRD had the objective of salvaging anything from the QW core, the conflict in values/personalities would certainly create extraordinaire stress. I think all RRD wants is the compatible print volume and will accept (because no choice) the near two dozen new MAN webs. Isolated employees are needed. Most will be let go. All other assets spun off as quickly as possible.

The Daimler-Chrysler debacle hopefully is not a good analogy.


By Michael J on Jun 04, 2009

The problem is that no matter what RRD wants, we've seen many examples of how bigger is not better. Ebay bought and then sold Skype. And of course AOL almost destroyed Times Warner and they have no left. Citi Group has realized that the one stop financial shop made sense then. But doesn't make sense now.

It's a crap shoot. Given my experience that RRD already has a very time talking to anyone but globals, I think they might well miss the disruptive changes happening on the ground.

But as Yogi said "Predications are very hard, especially when they are about the future."


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