Initial Thoughts on RRD-QW Shotgun Marriage Proposal

I nearly choked on my Coke this morning when the news came down that RR Donnelley (RRD) had made a pretty straightforward offer of $1.35 billion in cash and stock to acquire Quebecor World (QW). Here are my initial thoughts which, in this age of instant information, may change with the revelation of more facts. In other words, my good people, I reserve the right to backpedal off whatever’s written here and replace this blog with the latest adventures of Marmaduke. For brevity’s sake, I will use obvious acronyms.

For one, RRD is striking at a very curious time. Its net earnings crashed 92 percent last month…where are they finding all of this free cash to offer? These guys had $4.4 billion in debt as of December 31, 2008. But the final offer, be it $1.35 billion or $2.2 billion, is likely to force the bankruptcy court’s hand. Rough ballparking, the current offer represents 25 percent of sales. Can they do better? To quote Sarah Palin, “You betcha.” As for the actual owners of QW…as far as I can tell, they get nothing.

Much smarter people than I have assessed that RRD can past muster with the Hart-Scott-Rodino Act in the states and its equivalent north of the border, Competition Act Canada. Is there any doubt that RRD would boast big dog status in catalogs, long-run books and pubs? We’re talking a $16 billion combined company. RRD is Boardwalk, QW is Park Place. All that’s missing is the mustachioed man in the black top hat.

Not to start a scare among QW and RRD employees, but such a marriage would undoubtedly entail elimination of redundancy. This is definitely a forward-looking statement, but I think upwards of 10,000 people could lose their jobs. Low end, maybe 6,000 or 7,000 are cut loose. Even the most optimistic would peg it at 4,000 to 5,000. We won’t even look at cynical figures. Capacity would have to go away.

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Comments
  • http://D.EadwardTree D. Eadward Tree

    Donnelley is offering to match what the creditors would get from the proposed bankruptcy reorganization and throw in some Donnelley stock as well, as explained in "R.R. Donnelley Stalks Quebecor World" (http://deadtreeedition.blogspot.com/2009/05/rr-donnelley-stalks-quebecor-world.html). In either case, the stockholders would get nothing.

  • http://Robert Robert

    Erik,<br />
    <br />
    I like you almost snorted my luncheon tea when I heard about it on Tuesday. While I’m not sure HSRA will pass on this one, if it does, the large regional players for these lines of print must be getting a Tagamet timeout right about now.<br />
    <br />
    A question of cultures does remain. Does anyone remember Dalmer Benz/Chrysler? Talk about a wrong side of the railroad tracks marriage. This one has the makings of a sequel. <br />
    <br />
    As for the layoffs, I think you’re being too kind. Both are bloated and ineffective. Politics will likely keep some plants open, but I think a north of 15,000 number is more in line, and that may be what RRD is banking on by being presumptive enough to say it will be accretive to earnings in just 12 months<br />
    <br />
    Being a little guy under the radar seems to be a good spot right now. Sitting in a foxhole while the large artillery shell each other is fun to watch from a safe distance.

  • http://Todd Todd

    Not so fast Robert! To liken RDD to IQW and being "bloated" reads well in a blog, but is far from the truth for those of us that live with the job day in and out. Come fill our shoes for a week.

  • http://Kevin Kevin

    Having worked for both of these companies, I would see plant closings and layoffs on the horizon. Most likely at the QW facilities. Several of the QW facilities are antiquated and land-locked. I’m sure that RRD would be looking to reduce capacity to sure up pricing. An added benefit would be exclusive contracts that QW has with large publishers. Having that work would assure that current RRD facilities would be full.<br />
    <br />
    I am curious to see the resolution of this deal!

  • http://BradEmerson Brad Emerson

    Erik,<br />
    <br />
    I think it is safe to say if this sale happens, the printing industries "most challenging times" will shift into "no fun at all times" for awhile. After the bloody axe falls on redundancy, what happens to the print industry paper and equipment vendors with new world order purchasing power?<br />
    <br />
    I really do not look for the courts to stop, delay, or postpone this sale much. RRD can quickly conform to court request or sale condition guidelines.<br />
    <br />
    I do NOT think RRD is a bad company; I just don’t want them to be the only one!<br />
    <br />
    I think Quad could be in one of the best positions of all, and should consider augmenting their print product offerings into traditional RRD & QW market strong holds like hardcover, inserts, digital, etc.<br />
    <br />