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Quebecor World -- Back on Top of Its World

November 2008 By Erik Cagle
Senior Editor
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ALL EYES are on the growing global financial crisis. 

Tales of faltering banks and lending institutions burned severely by bad debt (and abandoned by golden-parachuted executives), and mortgage lenders who peddled adjustable rate mortgages to the un-affording masses have become all too familiar and will some day be etched into history books.

How quickly and successfully the economic landscape improves is dependent upon any number of variables. Certainly, the printing industry hasn’t been immune to the financial discord of 2008. But, back when the talk was of a possible recession—before the ramifications of the aforementioned issues came to light and the world collectively panicked in early October—there lumbered a great and proud printing giant, hemorrhaging stock value, unable to shed European assets that had become a liability, and in grave danger of becoming the biggest North American printer to perish.

Now, as retail businesses gulp at the prospect of a U.S. consumer public more concerned with squirreling away funds than spending lavishly in anticipation of the holiday season, out of the turmoil steps Quebecor World, smoothing over its jacket, straightening its tie, ready to step out for the evening.

Financial turmoil? Been there, done that, and now in a much different place. The Montreal-based magazine, book, catalog, direct mail, directory, magazine and retail insert printer has experienced a roller coaster of fortunes in 2008—bankruptcy, a new leader, new accounts, lost accounts, done deals gone sour, financing misfires and triumphs, shuttered facilities, lost jobs, and now...a new hope.

The pride of Montreal, which posted sales of approximately $5.7 billion in 2007—a loss of about $300 million from the previous campaign—is just about ready to retake its place among the ranks of fiscally viable printing companies with strong balance sheets. As of mid-October, the company was to start discussing terms of a bankruptcy exit plan with creditors (including exit financing), which would be followed by entering into a term sheet with its biggest stake holders.

Once the term sheet is secured, notes Jacques Mallette, president and CEO of Quebecor World, it generally takes three to four months to exit bankruptcy protection. 

Barring any bumps in the road—mindful that the company has to deal with reorganizational laws in two countries—Mallette anticipates term sheet approval by the conclusion of 2008. The end is near, and so is the beginning. A new name, fresh logo, bold identity and a refocused mission statement will usher in a new era and a possible return to greatness for North America’s second largest printing conglomerate. Along with organic growth, the company that expanded through acquisition will one day soon be active on the M&A landscape and perhaps add to its stable of 100 facilities and 24,000 employees. 

Oddly enough, it was the preparation made by Quebecor World before filing for protection that made for a smoother journey to bankruptcy’s exit ramp.

“At filing, we put in place $1 billion DIP (debtor-in-possession) financing,” Mallette notes. “That was well received by the market. We have the confidence of lenders, and there’s no way we’re going to need any more cash than that. Secondly, we put together a well-prepared communication plan. Within two hours after we filed, we reached the vast majority of customers, suppliers and employees. Very often, it’s the early stage where you can run into major issues. 

“We enjoy significant market share in every business we compete in, especially throughout the Americas. We have a very strong and loyal customer base. We generate significant EBITDA,” he points out. “In many protection cases, you find companies that have low profitability or do not generate cash. We’ve always generated significant cash, especially in North America. Our biggest issue has been Europe. Having market clout, strong plants, a good customer base, very loyal employees, a good communication plan and very sizable financing protection helped stabilize everything very quickly.”

Europe was the thorn in Quebecor World’s paw. These operations not only didn’t turn a profit, they required cash to stay afloat, hindering Quebecor World’s ability to focus on North America. The sale of its European operations last June to Hombergh/De Pundert Group (HHBV) for $206.5 million has shifted attention back to where it belongs.

Stabilizing the company in the face of reorganizational proceedings was a task for Mallette and Co., as perceptions have a tendency to distort and mask reality. During the first seven or eight months under protection, Mallette and other Quebecor World executives spent a good deal of time talking face-to-face with customers in an effort to make sure the information they were getting about the printer was accurate.

The results of their efforts were stunning. Quebecor World only lost a few clients, while some major publishers—most notably, McGraw-Hill, Simon & Schuster, Wenner Media and Parade—walked the contract talk in sticking with their printer. They also managed to pick up some new business along the way; no small feat in this environment, and particularly for a reorganizing printing establishment.

Mallette saw value in consolidating the company’s six divisions into three groups, a move that was made in deference to customers. “We had too many business units in the United States,” he explains. “That’s when they tend to operate like silos, with less synergy between them. We now have a leaner organization, less of a silo mentality. We’re aligned based on our customers, and we’re sharing a lot more services. Having three group presidents in the United States who work well together is a powerful way to structure the organization.”

The Publishing Services Group, headed by Kevin Clarke, consists of the former magazine, book and directory divisions. Brian Freschi serves as president of the Marketing Solutions Group, which includes the retail insert, catalog, Sunday magazine and direct mail divisions. Brad Nathan is president of the Logistics/Premedia Group.

According to Clarke, the formation of the Publishing Services Group has created immediate and natural opportunities. “Available magazine press capacity is being used to meet peak four-color educational textbook demand,” he notes. “Perfect binding capabilities are being shared. Certain short-run magazine work is proving a perfect fit for our book facilities. 

“Decision-making is being streamlined, and front-line personnel are being empowered, as inter-group silos are taken down and internal visibility increased, allowing us to create a more nimble, increasingly customer-friendly environment.”

Freschi adds that the structure change was a direct result of listening and responding to customers’ needs for integrated solutions that target specific marketing challenges across multiple channels. The results, he says, bear that out from a sales, marketing, operational and customer service standpoint.

“Our clients are expanding their marketing mix channels to reach an ever-changing consumer, while simultaneously consolidating operations to execute their multichannel campaigns under one roof,” Freschi notes. “Our realignment better supports our customers’ changing structures and provides a customer-centric focus that simply could not have been executed effectively by our internal silos of years past.”

As Quebecor World exits bankruptcy protection, Mallette sees direct mail and educational book manufacturing among the most fruitful sectors in 2009. Where the company can truly capitalize, he notes, is with its integrated multichannel solutions (IMCS) initiative that leverages strength across the Quebecor World platform of products and services. 

“IMCS is a customer-facing program that joins our subject matter print, premedia and logistics experts with outside strategic alliances in analytics and interactive disciplines to develop integrated solutions focused on our customers’ greatest marketing challenges,” Freschi points out.

“We have had great success with net.driver, a recent IMCS launch, focused on driving consumers to the Web using creative, analytics, integrated landing pages and highly customized personalization,” he adds. “Net.driver is produced completely in-line, thus providing a file sign-off to in-home delivery of only three days combined with automated letter rate savings vs. standard flat.

“We launched another IMCS product, store.driver, in October to specifically drive consumers to purchase in the store via a highly customizable direct mail solution that utilizes analytics to identify target audiences and deliver a personalized communication that can include store maps, fragrance and targeted coupons.”

Clarke feels it is important for the company to showcase its ability to address content utilization in terms of multiple channels for digital and ink on paper—the demand for modern publishers. Survival depends on a printer’s ability to bring more than a digital infrastructure and technical skills to the table.

“We work with our customers upfront, consulting with them on how they can expand their offerings effectively and efficiently by taking advantage of our Publishing Services Group,” he says. “We deploy the tools in our digital suite to meet their needs and their scope, including digital asset and content management solutions, ad and edit portals, Web-to-print solutions, digital workflows, digital edition technology and more. 

“For example, we’re offering a free digital edition of any new, non-contract work that is signed and begins production from October 2008 through March 2009. A new XML-based digital repository service, focused on both magazines and books, will also launch later in the fall,” he adds. “We will also continue our practice of funding proprietary research that helps our publishers better understand the marketplace and the consumer, as we did with our 2007 study for the Magazine Publishers of America, conducted by McKinsey & Co.”

How will Quebecor World raise the competitive bar? Clarke notes the company has deployed supply chain solutions that include new approaches to paper supply and speed-to-market manufacturing initiatives. Complex co-mailing and co-stitching processes have helped strengthen the value-added services.

“There’s a great opportunity to expand our reach into the book market, by reclaiming work now done in Asia and offering production in Latin America,” Clarke adds. “We already have a great solution there and, increasingly, the pressure on time to market and environmental initiatives make this an even better buying decision than in the past.”

Moving forward, Quebecor World will need to demonstrate stability. That is particularly true in Mallette’s position. In this decade alone, Quebecor World has seen a revolving door with its top executives: Marc Reisch, Charles Cavell, Michel Desbiens, Jean Neveu, Pierre Karl Peladeau and Wes Lucas.

Mallette believes the key to success is a strong balance sheet, and he feels Quebecor World will be touting one next spring, when it exits protection.

“We’ve done a lot of restructuring in the past, and we’ve right-sized our platform, so we’re extremely stable now and will be perceived as such by the market,” he adds. “We’ve gone through the pain and now stand ready to emerge. The integration of our value-added product offerings—which benefit our customers through synergies and maximize the impact of their advertising dollars—will all contribute to our future success.

“At the end of the day, it’s all about how much we contribute to the success of our customers, how we interact with them and how much value we can deliver. That’s how we make a difference.” PI
 

The Longest Year

A capsule look at the major events over the past 12 months for Quebecor World:

o Due to “adverse market conditions,” Quebecor World nixes a refinancing plan. It does reach terms with RSDB Group to sell its European operations for a total package value of (U.S.)$341 million, including $213 million in much-needed cash. The printer also closes a plant in Vancouver, which sheds 220 jobs.

o Shareholders of RSDB vote down the proposed acquisition of Quebecor World’s European assets. Wes Lucas, president and CEO of Quebecor World, resigns his post and is replaced by Jacques Mallette. 

o Quebecor World receives conditional waivers from lenders through March that require it to secure $125 million in liquidity by January 15, 2008, and provide a refinancing transaction by month’s end. 

o Unable to sell its European assets, Quebecor World files for creditor protection in the United States and Canada. The firm receives $1 billion in new financing from Credit Suisse and Morgan Stanley. A (C)$400 million rescue financing proposal from Quebecor Inc. and private equity fund Tricap Partners is terminated after failing to get approval from Quebecor World’s creditors.

o Quebecor World PLC, a Northamptonshire, UK-based subsidiary, closes its doors in early February after court-appointed administrators are unable to find a buyer. The shutdown leaves 250 out of work. 

o The company reaches agreement on new and extended multi-year contracts with Imagitas Inc., Stamats Business Media and F&W Publications, worth a combined $75 million annually. The retail insert and catalog division picks up long-term renewals with five clients for more than $55 million a year.

o Quebecor World receives final approval for $1 billion debtor-in-possession (DIP) financing.

o The Magog, Quebec, facility, a producer of magazines and retail inserts, is shuttered. Roughly 300 jobs are lost.

o The McGraw-Hill Cos. and Quebecor World come to terms on a contract extension through 2014 that sees the printer providing educational textbooks, ancillary products, professional learning tools and catalogs. The deal is worth a total of $285 million. 

o Wenner Media extends its agreement and gives Quebecor World an added 10 percent in volume. Meister Media Group, Affinity Group and Amos Publishing also ink multi-year accords.

o Quebecor Inc. says it may move print production of some Publications TVA consumer magazines away from Quebecor World.

o The printer’s North Haven, CT, general commercial plant is closed down. Including a staff reduction at the Islington factory in Etobicoke, Ontario, about 700 employees are let go.

o A major deal is reached with Simon & Schuster for the printer to provide more than 100 million hard- and soft-cover consumer books per year. Bauer Publishing, meanwhile, signs on for $60 million worth of magazine printing work.

o Quebecor World decides to integrate its six divisions into three groups. The magazine, book and directory divisions form the Publishing Services Group, led by Kevin Clarke. The U.S. retail insert, catalog, Sunday magazine and direct mail divisions become the Marketing Solutions Group, headed by Brian Freschi. 

o Quebecor World nets a deal for its European assets, with Hombergh/De Pundert Group (HHBV) purchasing the operations for $206.5 million.

o A multi-year agreement is reached with Reader’s Digest Association to print magazines and books.

o Canada Wide Media signs a seven-year hitch with Quebecor World worth $45 million for the printing of magazines and periodicals. Local Insight Media Holdings reaches an agreement that sees the printer produce more than 450 directories.

o Parade Publications signs a long-term contract extension.


 

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COMMENTS

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Most Recent Comments:
Mark - Posted on November 24, 2008
Dead Tree Edition (http://deadtreeedition.blogspot.com/2008/11/is-quebecor-back-from-dead.html) has some interesting commentary on this article.
Kurt - Posted on November 23, 2008
There is no doubt that QW will emerge from protection as a stronger and leaner/meaner shop. The question is: what would happen to the current shareholders? Would the common shares be wiped out?
Click here to view archived comments...
Archived Comments:
Mark - Posted on November 24, 2008
Dead Tree Edition (http://deadtreeedition.blogspot.com/2008/11/is-quebecor-back-from-dead.html) has some interesting commentary on this article.
Kurt - Posted on November 23, 2008
There is no doubt that QW will emerge from protection as a stronger and leaner/meaner shop. The question is: what would happen to the current shareholders? Would the common shares be wiped out?