Discussion

By Andy McCourt on Jul 28, 2009

A re-visit of the Drupa 2004 rumours or the real thing? Last time anti-trust laws were cited as why it could not happen but the world has changed dramatically since '04. Also, the German State has put several million 'rescue' Euros into Heidelberg - and this could be a way for the German taxpayers to get it back.They would be unlikely to invoke anti-trust laws this time. Heidelberg is a publicly listed company, manroland is private; but wanted to list a while back but could not. Maybe this would also be a way of achieving stock market listing (and Allianz CP making a good profit). Allianz Capital Partners are very smart people and have a lot of media experience to call on. I think it's serious this time.

By John Zarwan on Jul 29, 2009

Without commenting on the rumours, the merger, its potential benefits to the companies involved, its impact on the industry, or any anti-trust implications:
Anti-trust issues are decided by the (very independent) European Commission (see billion dollar fines to Microsoft and Intel), not the German Government. In the U.S. it will either be the Federal Trade Commission, which has signaled a tougher stance under Obama, or the Department of Justice. The anti-trust issues have not changed. The only thing that has changed is the relative importance of the industry. (That is, does anybody in government care?)

By Dennis Beck on Jul 29, 2009

Putting the anti-trust issue aside-and I think Andy is correct in his assumption-the real question is this a good move. Right now manroland and Heidelberg are weak companies. Their basic market for large press is shrunk world wide. manrolands venture into the 52cm market does not appear to be too successful-ala the 104. The amount of used equipment, as a result of bkcy and just plain plant closing, is quite large. Why buy a new press when you can get a "pre owned". What we have is two negatives joining forces to produce a positive-and by simple math that won't work. In order to make this combo work-manroland and Heidelberg will have to cast away duplicative models, close more plants, terminate excess employees,and streamline manufacturing. They will have to take the best of their technology and combine it to produce superior equipment at LOWER PRICES. If they maintain the same price level they will continue to drive printers to used equipment. In the end they need to shrink in size to meet the shrinking market for their equipment.

By Chuck on Jul 29, 2009

This will probably happen, in my opinion, but it seems like a difficult road to success. Although initially it could look good on paper, I think they would have a difficult time executing what they would likely have to promise to sell the deal. Then, there will be negative impacts on the resulting company operationally, shareholders will lose value, and customers will suffer as they sort through the product lines, and necessarily will cut personnel. Furthermore, both companies products are hurtling toward obsolescence, and are too expensive. Absent a game-changing new business idea that causes this to be a perfect match, the fact that they are selling into a declining market where there is already great overcapacity is the number one reason this will result in pain. Ironically, that is probably the primary driver of the merger.

By E Pat on Jul 29, 2009

This reminds me of the Sprint/Nextel deal. Two companies with very distinct and disparate designs and incompatible software systems, trying to force a merger that is probably being driven by the German government. A'la MAN/Miller/Roland a few years ago.

These two have been slamming each other's line for so long, it will be surprising to see if and how they can reconcile their differences. I don't think you can put two sick people in the same bed and expect them both to get well.

ep

By David on Jul 29, 2009

A merger? Unlikely. A takeover by one or the other--much more likely. The acquirer will eliminate the acquiree's product line in typical German fashion (they usually don't play nice together. There will be winners and losers. There is hardly ever a "fair" evaluation of product portfolios in M&A's. The acquirer will be after the acquiree's customer base, and will want to shrink the supply of equipment to allow prices to float upward. They could also scuttle "non-core" products like pre-press and post-press product lines, unless these are real cash-generators.

It will be really interesting to follow for sure.

Is Heidelberg truly a public company, or have they just issued "tracking stock?" I thought they were still majority owned by Rhein Elektra (sp?), the big German energy company that also owns Stahl (construction) and some other companies that are not in the energy business.

By Paul Borkowski on Jul 29, 2009

Philosophically these companies are destined to be aligned due to their impeccable ethics and devotion to print excellence. Fanatical printers will enjoy the ride on a Heidelberg/man! This is exactly what the industry needs to give it a boost and streamline our (printers) message to the media world.

By Irving I. Goldmacher on Jul 29, 2009

If this transaction indeed will improve Heidelberg's financial situation, then I view this as a positive development. Heidelberg's financial health is particularly critical to our industry because of its traditional focus on small and mid-size commercial printers which are, in fact, the majority of printers worldwide. Given Heidelberg's massive market share in this segment of the printing market, it is very important to ensure that these printers continue to have access to Heidelberg's industry-leading offset presses and service. The enhanced productivity of Heidelberg's cut sheet presses (e.g., the ability to economically produce ever-shorter print runs) gives the smaller printers the breathing space needed to successfully transition from an all-offset shop to a hybrid offset-digital capability. So, when thinking of the possible manroland-Heidelberg merger, let us look at the advantages that the strengthening of Heidelberg will bring to this hard-pressed segment of the market.

By carlos almeida on Jul 29, 2009

Sometimes big companies do not pay attention to small and more effiecient companies. They do not see them as a true competition. It has happened in the steel industry,(Betlehem steel) in the computer industry (IBM), and with some others large companies
Heidelberg and Mann Roland are the two giants in the printing industry. But dramatic changes have happened in recent years in the printing market. Demand and market prices have gone down, new services are offered by internet, digital printing, etc. The economic crisis have affected the companies cash flows.
The huge and expensive presses are becoming the new dinosaurs, this will promote new and cheaper way to provide the market needs.
Therefore the merger of the two companies will not solve their problem unless they produce a cheaper and efficient way to satisfy the commercial printing.

By Noel Ward on Jul 29, 2009

For what it's worth, earlier this year, three or four of us independent analyst types talked about this very scenario over dinner in Munich. None of us does work with any offset press companies but we still felt it was inevitable due to the decline in offset press sales, lowering demand for print and the rise of digital, especially inkjet. For what it's worth, we also figured KBA might be in the mix as well, but that manroland and Heidelberg were the big dogs who would come together first.

Whether it is a merger, joint venture, strategic alliance, acquisition, or whatever, it does make a lot of sense.

As this unfolds, though, one has to wonder about Japan. There's Komori as the big dog followed by a host of much smaller players. Look for some realignments there, too, before much longer.

As I recall, back in Munich we guessed that offset printing presses will ultimately come from some combo of Heidelberg/manroland in Europe, then Komori in Japan, with a few smaller firms filling in the gaps.

By Gerald on Jul 29, 2009

The speculation and rumors regarding these two companies merging has been going on for some time.
In the current economic environment it seems likely that the merger talks might get more attention. Allianz and the stock holders would most certainly benefit by this move. A merger of these two companies would surly be opposed by KBA, Unions and several other equipment manufactures and some supplier companies.
The bigger questions we can speculate on is the impact on an industry that has seen much better days. New and emerging technologies are beginning to challenge the big press manufacturers. What are the future prospects for these companies, if they don’t merge? Maybe if these two companies merge into a bigger better single company. Then maybe a few of the Japanese Suppliers might do the same.

By ken Chan on Jul 29, 2009

For the merge, who will define it is "good"? press-buyer as printing company or Stock holders as these companies owners?? for the press buyer point of view, can they provide better services and better products after merge? Don;t try cheaper products policy, since who wants cheaper products will buy japanese ones!! and the reason to buy german goods because of its quality!!
Thanks about the future biggest potential biyers group in Asia, China-Japan-Taiwan-Singapore...; Can they build something good to this market after merge with better after services after sales??
Anyway 1+1 = 0.75, means after cutting up the fat, more effective and more right to the target, and better to face the dropping of the needs.
Thanks about the old users and their feeling. It is a must in equipment selling business.. if you forget them, they will give it up..Feeling that those big boss is finding the way to keep customers after they merge, since Manoland users did not and will not buy Heidelberg. it is seldem to see a printing company have a manoland besides heidelbery.. so can they solve it after merge and convnce the old users to support this action??

By Andy McCourt on Jul 29, 2009

John Zarwan's point on anti-trust is well taken, as is his 'does anyone in government care?' rejoinder at the end. It would be ludicrous to suggest that a united manroland and Heidelberg could unduly influence the sheetfed market and reduce competetiveness when there are: KBA, Mitsubishi, Komori, Ryobi, Shinohara, Sakurai, Akiyama, Hamada, Screen, Presstek, Beiren, Hans Gronhi plus several other small Indian and Chinese manufacturers all playing in the game
On the wide web offset side, there is little or no effect since Heidelberg got out of web offset a few years back, so the rumoured merged company would be competing against: Goss, Mitsubishi, Komori-Chambon, KBA, Tensor, Manugraph, Pressline, Solna and Zirkon plus minor others.
Now, look at that list of offset press manufacturers, sheet and web, all competing in a declining market. Now think of the Digital press manufacturers (sheet and web) - competing in a rapidly rising market - there are less than half the number. This highlights the problem with offset manufacturing - too many companies competing for a shrinking pie. Mergers will be an inevitable thing.
There is now only a single manufacturer of commercial publication Gravure presses in the world - Cerrutti. The market shrank to 3-6 presses sold a year and then KBA (the only other manufacturer until 2005) handed over its IP and designs to Cerrutti of Italy.
Sometimes common sense overules political correctness, but not always.

By Tony Karg on Jul 30, 2009

Doesn't anyone question whether the reporting of this by our industry media even qualifies as news?

We typically expect our news media to fact check their stories and cite sources to validate what they are saying. In talking to some Canadian media about this, they claimed that because Bloomberg covered the rumour, it was okay to run with it. The original source of the rumour (a German only website) doesn't cite any sources and none of the parties will comment. Doesn't that raise any red flags with anyone?

I have to say I'm appalled by this type of news media thinking. It's a rumour, but since Bloomberg ran it, its okay to put out there. If they applied that kind of logic to all the news stories they ran, just imagine what would be reported on. Since when does our news media pick and choose which rumours to run? Seems to me there is a significant journalistic ethical standards compromise going on here in order to cover a sensationist story.

Blogs to me are a different space where speculation and commentary is part of the alure. This is clearly the right place to debate this kind of thing, perhaps it is also the right place to question and hold our media accountable for the stories they run?

By Jan Eskildsen on Jul 30, 2009

The discussion was in the Nordic area 3-4-5 years ago, and in out financial newpapers, when the German press brought it up : there will be merges in the time ahead, and MAN will be splitting up to be able to sell their different subsidiaries. If it will come through now, it's about time. Heidelberg sheet fed, man roland web fed presses and prinect in combination with printnet - could be an exciting result.

By Erik Nikkanen on Jul 30, 2009

As mentioned, there are lots of press manufacturers in the world. All make basically the same press. The purpose of a press is to put the right amount of ink in the right location on a substrate. This is true for web and sheet presses. The fact is the industry still has problems with this and the press manufacturers, even with all their improvements over the years, still do not have "hands off" control of this process with technology that can be delivered at low cost.

This situation is due to a highly technical and increasingly expensive approach that is not backed up by valid science and here is where the opportunities are.

If we draw a line in the sand of time and let's imagine some press supplier that does develop a press that is less expensive but is consistent and predictable, which results in less waste, more capacity with less skilled labour than presses in the past, it will have some affect on the decisions of the buying printers.

Most of you do not believe such fundamental improvements can be made but for just a minute let's accept that it is possible. In such a situation, what does it matter if large press manufacturers got bigger by consolidation. Consolidation does not make a better product. With the market getting smaller, the bigger players will be in even more danger of collapse.

At that point where the line is drawn in the sand, it will be much more difficult to sell finely engineered and machined technology that did not have enough thinking behind it to perform better and cost less. Printers in the market will make the painful choice of going away from their highly honored old suppliers.

It has happened in every other industry and it will happen here too.

By Bob on Jul 30, 2009

To think, that a merger of these two companies would NOT unduly effect the market is naive at best. The combined sales of #1 and #2 are probally greater than all of the others combined. By the way Chambone, Manugraph, Solna, Tensor, and Zircon are minor players.
How is it common sense to have one supplier?
I can only imagine what the price would be?

By Andy McCourt on Jul 30, 2009

Bob- I wrote that only in web presses would it not have an undue effect because Heidelberg DO NOT have web presses - so there is NO reduction in competetive web press sales. Manugraph and Tensor would dispute your 'minor player' tag - they are very successful and Manugraphs have replaced GOSS and manroland machines in several sites outside of India where they are made. Solna would argue with you too - they have sold more single-width newspaper presses than any firm other than GOSS and have just sealed a huge deal in China.
Sheetfed is a different story - Heidelberg claim 40% of world market, manroland claims 20%; so 60% is a majority share BUT with increased sales of Komori, Ryobi (now in the B1 market), large KBAs and even the Akiyama J press which is selling well, there will always be competition enough to maintain downward price pressure. Manroland's last AGM report cited 'fierce' price competition in web presses for reduced profits. Add the impact of the new battlefront - digital - and you have what can only be described as hyper-competition.

By Gareth Ward on Jul 31, 2009

Since these types of blogs are for speculation rather than facts, let's play the game. First turn back the clock to the collapse of the Berlin Wall. The former East German printing press combine is broken up. As their payment for unification, MAN buys Plamag, KBA buys Planeta and Heidelberg offers to build a factory (which turns out to be smaller than expected) in Brandenburg, Shortly after when the pearl of German prepress - Linotype-Hell is on the verge of collapse - Heidelberg buys it. Good business deal, or one encouraged by the German authorities?

Now up to date. Allianz owns two thirds of a press manufacturer that it had hoped to cash in on via an IPO. That's out of the question for now. But it still wants to sell a company that has by and large reorganised and is reporting, if not major profits then at least not litre upon litre of red blood. Management sees the future as a bespoke press manufacturer, rather than a mass market producer and has good positions in web presses for newspapers and commercial, even if most projects are suspended for now.

This is quite a different approach to Heidelberg, where from public comments, the problem is that the markets have stalled, but when they return, Heidelberg will once again be selling vast volumes of presses to the developing world and now also into the packaging sector. It's a big ask. The value of Heidelberg's stock indicates how investors see the future. And who knows what the value of Manroland's shares were and are?

The problem is not digital presses. Even Kodak is aiming for just 1% of the world's pages with Stream/Prosper. Neither it nor HP can produce as many presses as the litho manufacturers. The big problem is that a new litho press can take out two previous generation machines thanks to productivity enhancements, coupled with declining paper usage in developed economies, due as we know to all sorts of factors.

Heidelberg is in no financial position to buy Manroland even if it wanted to, which is doubtful. It has its own reorganisation to finance and ordinarily competition rules would prevent such a merger. If one were to argue that the print market is far bigger than the big 5/6 sheetfed press manufacturers to include any digital printing device, a referral to the authorities might possibly be avoided.

On the other hand, what if Allianz had found a buyer for its MAnroland shares from further east? Would the German government welcome a Chinese owner for Manroland, say Shanghai Electric perhaps which has a stake in Goss? or would it rather the company remained in German ownership, sheetfed for Heidelberg and web presses to KBA and might ease the way to such a deal?

Since of course this whole chain of discussion is based upon a report in a small German newsletter, reported as part of the fetid uncertainty of recession, it is part of the process that Erik and Noel allude to - people having a drink and asking what if? For sure as my Australian colleague notes, there is hyper competition in this industry, and in every sector we look at, there is one too many suppliers.

By Michael J on Aug 02, 2009

Andy and Gareth,

Thank you for the perspective from Oz. It's so refreshing for us in Euroamerica. My favorite alternative future has the Chinese coming doing the deal with Allianz.

In a classic model they would strip down the technology to be just good enough as a cheap as possible to compete against non consumption in Asia. Or they might test and imnplement Erik's notion that should radically decrease manufacturing costs.

The path is to deliver sustainable incremental improvements as the market requires. Sooner or later it tips and they are at the top of the pyramid. And "nobody saw it coming."

In the interests of humility and sensitivity to Black Swans, I always try to keep desktop publishing and "good enough" color separations at front of my mind.

By Andy McCourt on Aug 03, 2009

Thanks Gareth and Michael (Gareth is UK-based Michael, he used the term 'Australian colleague' because we've known each other for many years and we both like beer!). Too right:-speculation, rumour and speculation but the original Platow/Handelsblatt story cited 'as the result of a press release.' I have been unable to find any press release referring to a merger/takeover, or identify what source it might have come from, if it exists at all.
My own gut feel is that the Chinese will not feature signficantly in any outcome. Germany tends to be a consolidator, retainer and indeed acquirer of Industrial IP. Look at Volkswagen, now arguably the world's largest auto maker with Audi, SEAT Skoda, Bentley and Porsche in its family. I think Germany's camera industry learned a great deal from letting great IP and brands go too easily. With these 2 great brands in presses, and an entrenched foundry/manufacturing base - I see a very German/European/Eurabian outcome to the undoubted problem of over-capacity in offset press manufacture. "Follow the money trail" as they say!

By Ralf Schlozer on Aug 03, 2009

Andy,
according to the German new items the "press release" refers to the first "Platow Brief" article and so the rumour perpetuates itself. Also mentioned in some of the articles following the original "Platow Brief" article is that there have been plenty of "talks and rumours" about mergers. So this one is as actual or fictuous as ever.

Gareth - thanks for bringing it to the point: it is a rumour but it can be fun to speculate. So would it make sense? Mostly when the sheetfed business of both can be combined to get synergies in service (a bit in sales). If not - synergies between Heidelberg and manroland webfed only would be small.

By ALI on Sep 13, 2009

First of all this is an un-natural alliance if happens, otherwise its a pressure comming from Allianz SE to gain stock market value.

Assume if its happen, i see another Heidelberg/Harris partner ship at the end. Both companies have distinctive identities over the century and will not be able to compromise specially manroland.

It is a hard strategical decision specially for Heidelberg , of course they gain in the Webpress area , but what about sheet fed??? XL 105 with R700 directdrive? What will happen to the distributors area, it is going to be a Heidelberg-roland banner or Heide-roland? In my view it would be disastrous for both the companies as one has to loose/damage its identitiy for ever most probably roland due to the acquiree.

Now third view of the picture, if this happen, who will be the real gainer, Allianz or Heidelberg or roland? If ask me and if smart enough , THE " KBA" , KBA should do nothing but simply attack roland customers and then watch who will be the real gainer.

DLC