In reading this article, note that - Quebecor Inc. is the media conglomerate that owns Quebecor World. - Quebecor World is the largest printing company on the planet, formed in 1999 when Quebecor Printing and World Color Press came together. - Buy-out firm, Kohlberg Kravis Roberts & Co held the largest stake in World Color Press before it was sold to Quebecor. January 8, 2003 -- In the spirit of reviewing 2002, indulge us as we piece together recent events surrounding Quebecor that could shape the printing giant in 2003. We compiled information from various sources, industry watchers and also combed through the reporting of several Canadian press outlets. (The Canadian press covers Quebecor Inc. like the Washington Post covers the White House.) We put these items together and developed an interesting summary of Quebecor’s situation. Much has occurred at Quebecor World between September and December 2002. As noted in our Year in Review, Charles Cavell, CEO and Christian Paupe, CFO plan to depart. This follows the resignation of Quebecor World’s North American CEO, Marc Reisch in September. Related or not (see below) Robert Burton stepped down as Chairman and CEO of Moore Corporation at the end of 2002. In September buy-out firm Kohlberg Kravis Roberts & Co (KKR) teamed up with the Ontario Teachers Pension Plan Board for a $3-billion purchase of Bell Canada's directories business. According to an article in The Globe and Mail, KKR has a clear interest in the printing industry and a major desire to acquire Quebecor World. So how does all this relate? Burton, Reisch and KKR go way back... KKR knows Quebecor World well because it owned the largest stake in World Color Press before it was acquired by Quebecor. The Globe called Marc Reisch, former CEO of Quebecor World North America, one of "KKR's people whipping World Color into shape when it was acquired by Quebecor." At World Color, Reisch was President and Robert Burton was CEO. Marc Reisch is now a "special advisor" at KKR. In November, various media outlets reported that KKR made a $5.5 billion offer for Quebecor World. Quebecor Inc. denies that an offer was made. The Globe said that Quebecor World was seen as a logical buyout target in part because its stock trades at a discount to peers such as R.R. Donnelley. Analysts link the discount in part to Quebecor Inc.’s habit of unloading shares in the printing company at regular intervals and spending the proceeds on non-Quebecor World initiatives. Comparatively, R. R. Donnelley's shares command a multiple of 15 times the company's projected earnings per share for this year. Quebecor World's stock trades at 11 times its projected profit. It was reported that management, with financing from KKR, wanted to take Quebecor World private and move it out from under the much larger and debt laden Quebecor Inc. Turmoil within Quebecor World: The timing of Cavell and Paupe’s departure Charles Cavell, CEO and Christian Paupe, CFO announced their intentions to leave Quebecor World the day after Quebecor Inc. reported their most recent plans to sell shares in Quebecor World to raise cash. Once again, Quebecor Inc said the funds gained from the sale would be used to repay current bank indebtedness of Quebecor Inc. and Quebecor Media Inc. – with none of the proceeds going to Quebecor World. It is unknown whether this move by Quebecor Inc. prompted Cavell and Paupe to plan their departure. However, one executive said that there has been unrest in Quebecor World’s executive ranks for some time over this issue. "Printing profits and cash from equity sales should be used to pay for investments in our printing plants, not sent to the mothership to pay down cable debt." The speculation begins: Is Burton, Reisch and KKR scheming to acquire Quebecor World? Will Quebecor Inc. recruit Burton as CEO to hold off KKR? Will Moore be a beneficiary in the end? - The Green Sheet, a popular industry newsletter, briefly speculated about a possible Quebecor Moore based on Burton’s departure from Moore. - Another industry watcher noted Burton’s ability to remake World Color for a big sale to Quebecor in 1999. "Now Burton has turned Moore around. But who can afford to buy Moore except for a healthy Quebecor?" - And yet another industry watcher speculated that Quebecor Inc. might lure Burton in as CEO to hold off a buy-out by someone like KKR. "If that’s the case, Quebecor Inc. may be able to keep Quebecor World and eventually buy Moore." Certainly there are many possibilities and the timing of these events could be nothing more than a coincidence. Based on the information presented in this report, at least everyone’s speculation can be a little more qualified. We’ll watch this one closely. - - - Order of Events: 1999 – KKR with Burton (CEO) and Reisch (COO & President) sell World Color to Quebecor 1999 - Burton leaves, but Reisch stays to become CEO of Quebecor World North America January 2001 - Burton takes top spot at Moore and cleans house. Brings in most every senior executive that helped him turn around World Color (See our 2001 special report on this event.) September 2002 - Reisch leaves Quebecor World, joins KKR November 2002 – Quebecor Inc announces plan to sell some shares of Quebecor World Inc., proceeds used to pay Quebecor Inc. debt November 2002 – Cavelle, CEO and Paupe, CFO announce plans to leave Quebecor World November 2002 – Reports indicate KKR’s interest in acquiring Quebecor World. December 2002 – Burton announces plan to leave Moore, keeps "meaningful part" of his investment in Moore 2003 - ? Who is Quebecor? A Quebecor Refresher Quebecor is a very diversified corporation and its operations are organized into two major segments: --- The industrial segment spearheaded by Quebecor World. Quebecor World employs 43,000 people at 160 plants in 16 countries in North America, Europe, Latin America and Asia. --- The media segment, organized under Quebecor Media, a media company with over 15,000 employees, concentrated in Quebec and the rest of Canada but with operations elsewhere in North America and around the world. The Quebecor Media family of companies includes: - Vidéotron, the largest cable TV provider in Quebec with 1.5 million subscribers, and one of the largest Internet service providers in Canada; - Sun Media, the second-largest newspaper group in Canada, with eight metropolitan dailies in Canada and over 180 community newspapers and other publications across Canada and in Florida; - TVA, the top general-interest network in Quebec; - Netgraphe, the operator of the CANOE network of Internet properties, Canada’s best sites for information, leisure and e-commerce; - Nurun, an interactive agency offering business solutions based on customer relationship management and customer data mining, is an international network with more than 925 professionals working in several major cities across Canada, the United States, Europe and South America. Nurun also has a subsidiary, Mindready Solutions Inc. - Archambault, the largest music store chain in eastern Canada with 12 megastores, and extensive music/video distribution operations;Magazines, a celebrity news weekly and arts and entertainment weeklies; - A dozen associated publishing houses; - SuperClub Vidéotron, the leader in video rentals and sales in Quebec, with nearly 170 locations. As Quebecor World goes, so goes Quebecor Inc. In 2002, about 83% of Quebecor’s third quarter revenue came from printing, or Quebecor World, as did more than 81% of the year-to-date revenue. The Quebecor Media segment, consisting of seven categories contributed about 17% and 19% respectively. Revenues 9/30/2002 % Total YTD 2002 % Total Printing $2,527.4 82.9% $7,140.8 81.4% Newspapers $ 200.2 6.6% $ 625.1 7.1% Cable Television $ 174.3 5.7% $ 533.9 6.1% Broadcasting $ 68.1 2.2% $ 226.1 2.6% Leisure/Entertainment $ 55.7 1.8% $ 167.6 1.9% Business Telecommunications $ 21.2 0.7% $ 67.3 0.8% Web Integration/Technology $ 18.1 0.6% $ 59.4 0.7% Internet/Portals $ 6.8 0.2% $ 20.9 0.2% Inter-segment $ (21.4) -0.7% $ (68.6) -0.8% Total $3,050.4 $8,772.5 Quebecor World did not contribute quite as much to the operating income: about 75% of third quarter operating income and nearly 71% year-to-date. The newspapers and cable television segment of Quebecor Media contributed about 21% and 24% respectively. The operating income contribution from the remaining five Quebecor Media segments totaled 4.5% and 5.5% respectively. Operating Income* 9/30/2002 % Total YTD 2002 % Total Printing $ 392.8 74.8% $1,024.0 70.7% Newspapers $ 61.4 11.7% $ 189.5 13.1% Cable Television $ 47.3 9.0% $ 156.2 10.8% Broadcasting $ 13.0 2.5% $ 48.1 3.3% Leisure/Entertainment $ 8.3 1.6% $ 19.3 1.3% Business Telecommunications $ 3.1 0.6% $ 19.4 1.3% Web Integration/Technology $ (0.9) -0.2% $ (10.0) -0.7% Internet/Portals $ (0.1) 0.0% $ (2.8) -0.2% General Corporate Income/Expense $ - 0.0% $ 5.0 0.3% Total $ 524.9 $1,448.7 *Operating income before amortization, financial expenses, interest on redeemable preferred shares, reserve for restructuring of operations, write-down of temporary investments, non-monetary compensation charges, write-down of goodwill and gains on sale of business and other assets and on dilution. by Gail Kailing