A Frankenstein of a Merger

Next, we look at the resources of each organization. By and large, their resources are hard ones—plants and equipment—as opposed to soft—people and ideas. However, because these resources perform different functions, there are few synergies of substance. Some might claim that sales synergies could be realized, but I’m not convinced that NewPage could sell to Quad more efficiently just because they’re owned by them. NewPage would still have to sell to other printers, and to do so, they would need to remain independent from Quad. In fact, IP and xpedx might serve as a good example because they’re not integrated, which kills SG+A synergies.

Next, we evaluate the redundancy of the firms’ resources. As vertically integrated companies, there is almost no redundancy. No redundancy, no synergies, no savings, no benefits and in the end, no reason to acquire.

When we look at the market factors for a deal, I would consider the degree of uncertainty to be relatively high based upon stock betas of Quad (1.36) and comps of NewPage, Domtar (1.75), SAPPI (1.29), and IP (1.54). High risk demands a big reward, and that doesn’t look possible with these two entities, each operating in mature markets.

So, does a NewPage acquisition help Quad maximize its customers’ print ROI? Does it help them lower their costs? From my vantage point, it does nothing on to help its customers, and I don’t see much effect on its costs either. We have two mature companies, neither of which has strategies that complement the other, and they’re both looking at a “bet the company” deal. It doesn’t make much sense to me.

So while I have affection for both companies at hand, any deal between them would certainly be a dog.