By Susan Kelly November 11, 2003 -- RR Donnelley (NYSE: DNY) and Moore Wallace Incorporated (NYSE/TSX: MWI) announced on Sunday that they have an agreement to create the world's premier full-service commercial printer with over $8 billion in annual revenues, a leading position in North America and approximately 50,000 employees worldwide. The combined company will retain the RR Donnelley name and will be headquartered in Chicago . Upon closing of the transaction, Mark A. Angelson, Chief Executive Officer of Moore Wallace, will become CEO of the new RR Donnelley, succeeding William L. Davis, Chairman, President and CEO of RR Donnelley. (See the complete press release.) Editor's Note: The timing of this stock deal should be no surprise as the rumors of a merger were already floating around in the marketplace. We believe the timing of this announcement was a calculated move by Moore Wallace and RR Donnelley given their positive third quarter financial performance. More importantly, the announcement provides the necessary “air cover” needed in the fourth quarter as the last of Wallace's major integration costs are reconciled into Moore Wallace's full year 2003 statements. What will be most interesting to watch in the quarters ahead is the infrastructure challenges of the two companies trying to work together. On the call, the two CEO's talked repeatedly about one-stop shopping and integrated print solutions for their combined customers. However, we maintain that the customer base of both companies are so completely different (i.e. R.R. Donnelley works primarily with Publishing customers and Moore Wallace with Enterprise Printing customers) that with time, their support needs will continue to look like two different animals. In other words, to capitalize and support both customer segments with their respective customer's standards, technology, workflows, and infrastructure will represent a monumental challenge for the combined organization. In operations, for example, RR Donnelley uses DiMS! as their software of choice whereas Moore Wallace is in the middle of a Radius Solutions roll-out. How well the integration efforts succeed in the next 2-3 quarters will determine the overall success of the combined entity. Watch for their next moves to be around acquiring core competency in Tier 1 IT, systems integration, and technology applications. The new CEO, Mark Angelson, has proved that he can accelerate this integration process to drive financial results and is now being tested to do it again on an entity twice the size and twice the complexity. RR Donnelley will assume approximately $900 million in Moore Wallace debt with a total combined debt of $1.9 billion. Upon completion of the transaction, RR Donnelley and Moore Wallace shareholders will own, respectively, approximately 53% and 47% of the combined company. RR Donnelley and Moore Wallace will contribute eight and seven directors, respectively, to the combined Board. They expect to close the transaction by the end of the first quarter 2004. Q&A from Analysts 1. Right now the only decision for the leadership team is the CEO - Mark Angelson. Finalization of the management team will be made in the next 120 days and the announcement of that will be all at once. 2. They have applied for and plan to keep their TSE listing (Toronto Stock Exchange). 3. Bill Davis, CEO of RRD, stated that “Capabilities are more important than price. Customers want more administration and control issues especially as they move towards content management activities; which ultimately helps get RRD out of pricing each component.” 4. Questions were asked about the growth for the RRD business and their business sensitivity to Advertising sales. Mark Angelson replied that “This is a chance for Moore Wallace to associate itself with the premier printing company on the planet and we are catching it at the right time in the cycle. RRD is busier now than it has been for a while and even though advertising sales haven't really turned yet, we believe the best timing for this transaction is about 120 days from today.” 5. Both CEO's confirmed that they have very different platforms which they believe are totally additive. Most of the synergies will come from cost savings. 6. Since the beginning of 2003 both companies have been talking with each other. Bill Davis and Mark Angelson used an intermediary investment banking consultant to help pull it all together and by August 2003 the talks turned serious. 7. This combination of companies will double the synergies from the Moore Wallace transaction. Currently Moore Wallace is expecting $100 million from the Wallace merger and another $200 million in 2004 for the RRD merger. They are trying to be conservative as they have only conducted public company due diligence. Over the next 90 days they will know more about the opportunities for synergy, especially on the revenue side. Mark Angelson commented “This is a classic merger of equals - a perfect fit. Both own printing sectors of different kinds and the similarities stop there. This is an opportunity for RRD to complete parts of its strategic plan in one fell swoop. This helps Moore Wallace get the global and pre-media capabilities and complete the full suite of products and services.” 8. No numbers were given for the revenue synergies but “they have proven that they can do it.” They will be forming the integration teams over the next week. 9. The executives believe there is no head-to-head competition today in the market place. There is no one company that can compete across their total platform which renders each of their competitors as a segment competitor. Mark Angelson summarized the call with three final statements: •  This is a long term value proposition…Moore Wallace was not for sale at this price, this is a merger of two equals. •  They believe they have the requisite integration experience to make this a success. •  This is a once-in-a-lifetime opportunity to be associated with RRD, a premier printing company.