Publicly Held Printers Caught in Stormy Seas —Michelson

CONVENTIONAL INDUSTRY wisdom seemed to favor large, publicly traded commercial printing enterprises. They operated with lower cost structures than their often smaller, privately held competitors, in part due to their ability to negotiate better prices for consumables like paper and ink, along with company healthcare and operating insurance premiums. They maintained deep pockets to fund continuous capital improvement expenditures for the most automated machinery and workflow platforms available, enabling higher job productivity and better employee utilization company-wide. They leveraged their ability to cross-sell products and services to a diverse customer base within a bevy of markets. They attracted the best talent; people sought them out for the generous salary/benefits, greater opportunity for advancement and sense of job security that came with working for the pride of the printing industry.

But--as recent news involving several large companies indicates--the pendulum seems to be swinging the other way. Several of the top public printers are drowning in turmoil, ranging from leveraged buyout rumors and downsizing through major plant closures and layoffs, to failed M&A couplings and even a hostile takeover attempt. While it may make for an interesting read on the local newspaper business pages in the cities where these various operations are based, it's not good news for customers who wonder whether their print providers' plants will remain open, key contacts will stay the same, and quality and service will be maintained.

At press time, the latest word out of the Windy City is that RR Donnelley is in preliminary negotiations with two competing leveraged buyout (LBO) consortiums to take North America's largest printing conglomerate private. Some analysts now question whether a deal will actually materialize, however, given the chasm that reportedly exists between the likely bids and what Donnelley's board feels the company is worth. Partly due to a heavy debt load, the printer's share price has been in the doldrums for some time, despite efforts by management to morph beyond traditional print into services such as business process outsourcing through its recent acquisitions of OfficeTiger and The Astron Group.

North of the border, Quebecor World continues to reel from a string of poor financial results. The latest cost-cutting moves there entail a five-point transformation plan to rejuvenate the organization's lagging performance and balance sheet, which calls for another round of plant closures and head count reductions throughout its global platform.

After pondering a range of strategic options, including a possible sale of the company, Consolidated Graphics can't find a dance partner and continues on its aggressive acquisition track. Valassis struck a $1.3 billion deal for ADVO, but is now backing out claiming financial fraud and internal control deficiencies.

Capturing even more attention, Cenveo, led by kingpin Bob Burton, has embarked on an unsolicited takeover bid of Banta. The jury, for now, is still out on Burton's latest move.

Undoubtedly, boardrooms within several of these industry stalwarts are abuzz with M&A and cost-cutting discussions, inquiries are pouring in from uneasy clients and, sadly, talented workers are updating resumés. These venerable establishments deserve better.

Mark T. Michelson