RR Donnelley Split Sends Shock Waves

How ironic that the largest conglomerate in the printing industry, which has been on an acquisition tear the past several years, announced it is breaking up into three separate, publicly held companies. One can only surmise that the individual pieces are more valuable than the 150-year-old, nearly $12 billion RR Donnelley is worth as a whole—at least in the eyes of Wall Street types and amongst those companies that might be looking to acquire any select assets.

In its press release announcing the breakup, Donnelley CEO Thomas Quinlan referenced each entity’s enhanced ability to pursue growth opportunities and focus on their individual strategies, but his comment that “we see a significant opportunity to unlock value” is perhaps the most telling reason.

An insightful blog written by the anonymous analyst Dead Tree Edition discussed how the Financial Communications Service Co. (FinancialCo) 
is considered the “crown jewel” of the three spinoffs. With its Edgar online corporate regulatory filing repository and its document security, translation and complex financial report services—which are used routinely by the largest corporations and IPOs—the equity value of FinancialCo alone may exceed that of the present company in total.

According to Dead Tree, another key point is the fact that RR Donnelley’s more than $3 billion in debt and $677 million of underfunded pension and other defined-benefit obligations will remain with the Customized Multichannel Communications Management (CMCo) spinoff.

That will also allow the third new company, Publishing and Retail-Centric Print Services Co. (PRSCo), to take on more debt to further consolidate the periodical, catalog, inserts, office products and book markets—without having to fear any potential Hart-Scott-Rodino antitrust roadblocks from the FTC and U.S. Department of Justice.

Sadly, the creation of these three independent businesses is also about distancing themselves from being viewed as old-school, ink-on-paper “print providers”—and the subsequent negative industry outlooks and valuations commonly held by Wall Street bankers, traders, hedge funds and even individual investors who hail from Main Street USA. By contrast, those who make their living within the printing industry know it still has a lot of upside potential as an important part of the modern media mix.

But, like the McDonalds franchise that has been scrutinized for its “value-size” portions and offerings, industry conglomerate RR Donnelley believes that it needs to downsize, rebrand and revamp its entire menu.