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COMMENTARY: Tribute on Merger Talks Breakdown

October 16, 2009

Earlier this week the following article appeared in a Reuters news release: manroland, the world's second-biggest maker of printing presses, has called off merger talks with Heidelberg due to poor financial results at its troubled larger rival, three sources familiar with the matter said. “Under the circumstances it is not defensible in view of the responsibility that manroland has to its customers and employees,” one person told Reuters on Monday. manroland's majority owner Allianz Capital Partners and minority partner MAN didn't like what they saw in due diligence, the source continued. “The deal would make sense in principle but not at the current moment and certainly not in 2010 — perhaps more in the mid to long term. There is no belief in the possibility of financing it,” another source said. The person said one reason was Heidelberg's warning late on Friday that sales and orders would remain below its expectations, leading to an operating loss that could as much as triple over the previous fiscal year that ended in March.”

Don’t you just love these anonymous quotes, particularly when later in the article it stated, “Heidelberg, manroland, MAN and Allianz declined to comment.” Well if manroland and Allianz declined to comment who the hell is making the above quotes!

When I read this my first thoughts were that if manroland or Allianz were surprised that Heidelberg’s sales and orders would remain below expectations, then do they really understand the current state of the market. Are they telling us that manroland is having a great fiscal year and that their sales and orders are going to be above expectations. Far from it and I’m sure that the figures of manroland are just as  or more depressing than those of Heidelberg. So don’t try to kid me that this is the reason that Allianz and MAN are pulling the rug from this deal at this time.

I decided I’d call Heidelberg who I know pretty well. They told me that unlike manroland who are a private company, that Heidelberg as a publicly quoted and listed company couldn’t comment on such a situation. So I thought that I’d look at this and give my opinion on what may be happening.

One has to consider that Allianz came into manroland some years ago when MAN was largely divesting of its ownership in what was then MAN Roland. My view is the venture fund side of Allianz thought it saw the opportunity to rapidly capitalize on an investment in the new manroland on the basis of a rapid move to float the company or sell it on. Venture funding companies are always looking when they go into an investment to what are their options in the future are to get out of the investment with a profit. I personally thought their due diligence at the time was very flawed if they saw a real profit opportunity in becoming the major shareholder in manroland. The market was already going down at that time and Heidelberg had already started its move into the VLF sheet fed press area where MAN Roland was the major player.


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