Sunday, January 6, 2013

How About a NewPage-Quad/Graphics Merger?

After finally emerging from bankruptcy protection, with a much lighter debt load, NewPage Corp. clearly has merger on its mind.

Why else would North America’s largest maker of coated paper choose as its chairman Mark A. Angelson, the U.S. printing industry’s Great Consolidator? And why else would he accept the job?

Only four months ago, the man who led the rolling up of such major printers as Worldcolor, MooreWallace, and Banta quit an apparently successful run as deputy mayor of Chicago so that he could lead “a somewhat less frantic life.”  It seems unlikely that he took hold of the NewPage reins simply to be caretaker of a stable company in a declining industry. As I’ve noted before, even his initials are M&A.

Further consolidation of the paper industry is inevitable, but could Angelson & Co. have something more radical in mind? Like maybe a marriage with a printing company? Like maybe Quad/Graphics, the continent’s #2 printer?

This is pure speculation, and it might be totally crazy, but hear me out:

Natural allies; failed alliance
The idea that the two Wisconsin-centric companies are natural allies has been around for years. Quad, according to several sources, proposed an unusual alliance with a NewPage predecessor a couple of decades ago:

It would build a new printing plant (this was back when Quad and the printing industry were growing enough to need new plants) next to an existing Consolidated mill. Raw logs would enter one end of the facility and come out as printed catalogs and magazines at the other.

Consolidated declined, supposedly because it feared antagonizing Quad’s competitors. The two companies ended up having a fairly public falling out, with Quad reportedly buying no paper from Consolidated for several years despite the obvious logistical advantages of mill-to-printer shipments of only 100 miles or so.

Recent history is even more significant. Only seven months after taking the helm of Worldcolor following its exit from Chapter 11, Angelson helped engineer a takeover by Quad. He reportedly developed a close relationship with Quad Chairman & CEO Joel Quadracci and served on the combined company’s board to help with the transition. He left the board in April 2011 when he agreed to take the job in Chicago Mayor Rahm Emanuel’s administration.

Where are the synergies?
A mill/printer alliance could remove some of the marketing and transaction costs of paper, provide the printer favorable pricing, and enable the mill to run more efficiently.

Printers are also better shippers than paper companies. Shipping is a necessary cost for paper mills, but a core competency for major printers; Quad has its own trucking company.

Paper machines and web printing presses have some similarities. A couple of paper engineers have told me they could teach printers a thing or two about maintaining proper tension of the paper web.

It’s also possible a combined Quad-NewPage could reduce its income tax bill by millions of dollars via Cellulosic Biofuel Producer Credits, better known as Son of Black Liquor. NewPage has not benefited from that program credits because it has not had any taxable income to offset.

I don’t pretend to know whether these potential synergies are enough to justify a merger between a paper company and a printer in general, or specifically between NewPage and Quad. But after its 16-month sojourn in Chapter 11, NewPage will definitely be worth watching.

Footnote: Like some other U.S. paper companies, NewPage in recent years has derived more profit from government handouts like the original black liquor tax credits and Son of Black Liquor than from actually selling paper. So Angelson’s ties to the Obama Administration, via Emanuel, may be another feature of his resume that was attractive to NewPage’s new owners.

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10 comments:

Dustin LeFebvre said...

A bit more analytical rigor might have done this blog well. The synergy discussion is superficial and lacks depth of thought.

At best, these two companies might benefit from an equity alliance or non-equity alliance. A merger is borderline absurd.

The synergies are sequential, not modular or reciprocal. The resources are hard, and they are not redundant. With a high level or market uncertainty in both industries, I think both of these companies would be better served to focus on their own challenges.

Anonymous said...

Right out of Andrew Carnegie's playbook.
Vertical integration.
History always repeats.

Anonymous said...

I haven't given up with a verso merger yet. Seems very strange how abruptly verso quit. Can't imagine Leon black taking that big of a beating on those 2nd Leon bonds. I still feel a back room deal was made. I can't imagine n.p merging with quad,but stranger things happen. What a huge blow that would be to verso if your idea unfolds,since quad is a large consumer of verso paper.

Anonymous said...

It does seem plausible. The only way for growth in the NA coated paper markets is to take business from your competitors. What better way to bury one of your two competitors than to buy out one their largest markets - Quad/Graphics. Goodbye Verso. That will just leave SAPPI left. They probably figure their new product Sterling Premium will take away SAPPI'S market share, leaving them at the top.

Anonymous said...

no way

Anonymous said...

How about newpage snapping up verso bonds? wait for verso to go bankrupt,then take control of their biggest competitor and get some world class mills to boot? Wait and see this play out.

Anonymous said...

The more I think about it the more i think the quad merger could happen. No anti trust issues to deal with either.

Anonymous said...

I agree the quad/new page deal is intriguing but short term I don't see New Page merging into Quad or vice versa, especially with both companies continuing to struggle with making any real money over the past few years. Of course, Quad continues to grow and slim down at the same time, with the recent Vertis acquisition while also closing down inefficient plants. Plus Quad's being a relatively well-run public company conflicts with the poorly-run "once Cerebus-held" public wannabe. Just hard to imagine how these two entities could combine in a positive move for both companies other than giving New Page an outlet for their paper that they couldn't get otherwise.

Anonymous said...

Well, something will happen before long. If you notice, NewPage's new "owners" are all banks. Making paper isn't likely a long term strategy for them. Even before they assembeled the BOD as they have, I figured it would only be a matter of time until they were sold outright or forced to sell stock and take direction from Wall Street.

Anonymous said...

I dont believe a merger between these two are likely but how about a combination of wausau and verso. Little birdie is starting rumours