A Bidding War for Printcafe?
The week started out with an announcement by Creo that it was increasing its Printcafe stake to 55% with an offer to buy the whole thing. Was anybody really surprised? The move made sense as it would allow Creo to flex its marketing muscle over the workflow and management solutions for commercial printers. It remains to be seen if a combined Creo/Printcafe can do that. If it does, Creo could become a 1200-pound gorilla (it was an 800-pound gorilla) as far as vendors go, as they become too influential to dismiss. It would also start to clear up some balance sheet and other issues at Printcafe.

Meanwhile, a surprise – and unsolicited – bid for Printcafe emerged from EFI at $2.60 per share. Perhaps we now know why Creo moved when it did. I wonder what the legal ramifications are should the minority shareholders rise up, claiming that Creo's intentions when they purchased the shares needed to get to 55% were tainted and that their pre-emptive move prevented a more reasonable process of offering/selling the company?

It may be too late for EFI to do anything, but in order to placate the 45% minority shareholders, Creo could push its bid to $2.25- $2.50 just to make EFI go away. As far as I can determine based on the balance sheet, buying Printcafe is not a financial opportunity worth chasing. It can be easy to overpay for specialized software businesses. (All of the companies in this space vastly overestimated the potential market.) So don’t discount the possibility that Creo may actually take the offer!

There is the possibility that Creo wants to get out of its situation with Printcafe or that it might prefer to own it 50-50 with another company who could give it access to a broader market (in the case of EFI, a downmarket of smaller printers and corporate departments through semi-embedded software or equipment/software bundles).

So Printcafe might be very pleased that EFI appeared at the table, and maybe Creo’s purchase earlier this week was designed to stimulate an action like this rather than to pre-empt it. One day, we'll know the full story, but for right now, it's fun to be a spectator.

Regardless of who ends up with Printcafe, as printers move forward in a climate of intense competition and demand that will stay slack despite any possible economic upturn, upgrading management information systems will be essential for their survival. As I look at successful printers, they always know where their money is going with certainty, and by the middle and end of this decade, that level of knowledge will become an even more obvious differentiator between success or mediocrity.

Bottomline, this bidding war has to be considered as good news for Printcafe customers as they are now better assured of support for the longer term, regardless of the outcome.

Forms Giants Plan Merger
The announced Moore-Wallace merger is a indicator of companies coping with significant changes in the marketplace by joining together rather than face market uncertainty alone. This announcement is the first of what is likely to be a two-year period of cost-based and rationalizing mergers in the print business. This will be far different than the mergers of the late 1990s, which were frequently based on inflated stock prices (or junk financing), with many companies using that stock to make sometimes harebrained acquisitions. In times of slack demand, however, mergers such as Moore-Wallace can help organizations reinvent themselves. In fact, these kinds of mergers work only when the companies truly merge to create a differently run business, not by maintaining camps and cliques associated with the prior individual businesses.

In a previous failed acquisition effort by Moore which ended in August 1996, Moore's last bid for Wallace was $60 a share, offered at the end of 1995, compared to the current price of $30 per share. Through the years, Moore's stock price dropped significantly, by almost 90%, when it was as low as $2 in 2000. It closed just over $9 at the end of 2002. The new management team at Moore that engineered that turnaround should be complimented. (But those kinds of aggressive turnarounds should never be necessary; I always marvel at companies that never need to be "turned around.") In the same period, Wallace's shares had decreased as well, by about 20% as of year-end 2002, since they fended off the Moore bid in the mid-1990s.

During the first takeover bid, I questioned its wisdom, as Moore was sitting on loads of cash, and it looked to me like it would be easier to invest in their sales force and other competitive moves that would squeeze Wallace into corporate misery. But, it's always more glamorous to make takeover bids rather than to fight in the trenches of the marketplace. After all, putting a competitor out of business is an expense. Buying them instead adds an asset (and liabilities) to the balance sheet and can get you on the cover of a business magazine. You also get to hobnob with investment bankers and eat at some really expensive places. But it's the un-glamorous things, like the way you work with customers every day, that gets you ahead in business. This merger seems to be one necessitated by the marketplace, not by the bankers.

As the industry starts a new wave of consolidation, expect the cost-cutting and restructuring in the new Moore-Wallace -- as well as in whatever new mergers are announced -- to be rampant in 2003-2004. Even though studies have shown that more than half of mergers don't work out, the new marketplace we're in makes the risks worth taking. I believe that the risks of not consolidating are starting to outweigh the risks of consolidating by a wide margin.

Leading Economic Indicators are Good but Don’t Bode Well for the Print Industry Yet
Despite some negative economic news stories of late, the Conference Board's Leading Economic Indicators were up for the third straight month. Earlier this week, good housing numbers, confirmed in the LEI report, showed that the consumer-led economy is still going.

The good news for the printing industry is that the average manufacturing workweek was up. If that metric continues to rise, it will lead to greater capital investment as well as increased advertising and promotional expenditures, some of which will translate into increased print sales.

The only negative aspects of the leading indicators were unemployment claims and stock prices. I have felt for some time that increases in the NASDAQ index -- that is, rising stock prices reflecting better business conditions for small and high technology companies -- is essential in creating a print business turnaround. We still need a stimulus on the B2B side, as the consumer-based economy may not have legs, but it's still moving forward about a year after the experts thought it would poop out. I still think the chances are there that we may see another rate cut, since productivity is still good and inflation is still tame, and that Congress may take its sweet time delivering the tax overhaul that is so needed.

More on AOL and Cross-Media
You can't have cross media unless you have content, but someone should explain this to AOL/T-W. A New York Times report says that the company has retained Merrill Lynch to sell its book publishing division, which includes Warner Books and Little, Brown. The report said that AOL/T-W is trying to sell its three Atlanta sports teams. If there's anything that lends itself to cross-media, it's sports entertainment, with its intertwined web sites, yearbooks, scorecards, promotional materials, electronic games, clothing, and so many other formats. I know that the cross-media concept doesn’t need AOL/T-W for its adoption into common practice, but had they done it right, it certainly would have helped. If these divisions get spun off into smaller companies, perhaps the incentives to change the status quo will lead them to more aggressively pursue this path than AOL/T-W’s managers would have.

GE Goes Online with a Vengeance
This is a big deal: GE Online Ads. The company announced a major online advertising campaign featuring the company's new "Imagination at Work" tagline, first appearing online Sunday evening to coincide with the broadcast of the Golden Globes awards show.

This is GE's first major foray into online advertising. Although the company declined to say how much of the total budget will be spend online, it is likely to have an impact on their spending for print advertising . . . there goes more ad pages for the hard copy magazines!! Believe me, other big corporation ad managers will be watching how GE evaluates this strategy a few months from now.