Q&A on the Donnelley-Quebecor World Deal

For the latest on Donnelley's effort to buy Quebecor World, see "After 3 Swings at Quebecor, Has Donnelley Struck Out?"

R.R. Donnelley’s proposal to take over Quebecor World has been the talk lately of almost everyone involved in producing real books, magazines, and catalogs. (By “real” I mean ink-on-paper publications, as opposed to the kind that can only be read on petrochemical-containing, electricity-burning devices. You know, “dead tree editions”, as opposed to “dead dinosaur editions.”)

There’s been a lot of misunderstanding about what is going on, including some notable goofs by the mainstream media. To clear up the confusion, Dead Tree Edition (with the help of some anonymous correspondents) offers this Q&A guide:

Q: The big question: Can the deal win government approval? A: Adam Dewitz of PrintCeo says, "I don't see anything stopping this deal from going through," and Frank Romano chips in with a video commentary at the same site noting there are thousands of printers in the U.S. The problem with that view is that there is not one printing market but many; small sheetfed shops are irrelevant to the RRD-QW discussions. Some major print-buying organizations are already planning anti-trust challenges to RRD's proposal. Although Donnelley will probably end up buying QW, it seems likely that some plants will have to be divested -- especially in markets like rotogravure printing that are already oligopolies. (Because rotogravure printing is such an important part of the discussion and yet not widely understood, Dead Tree Edition has invited industry expert Jack Graber to explain the ins and outs of rotogravure from a buyer’s perspective and how it can be used in conjunction with offset. Look for Jack’s three-part series starting tomorrow.)

Q: Is it a good deal for Quebecor? A: First of all, we have to define what is meant by “Quebecor”. If you mean the stockholders of Quebecor World, the proposal would not change anything: As with QW’s proposed bankruptcy-exit plan, they would get nothing. If you mean the banks, bondholders, and other creditors who control and essentially own QW, then the answer seems to be yes as long as a couple of kinks can be worked out. (See "Time May Not Be on Donnelley's Side" and "Donnelley Makes Another Pass at Quebecor World".) If you mean the company called “Quebecor” that is headed by P. K. Peladeau, it’s irrelevant; that company is no longer affiliated with QW and in fact has filed litigation to force QW to drop “Quebecor” from its name.

Q: You mean the Wall Street Journal goofed when its story about the proposal included that goofy photo of Quebecor’s annual meeting? And other mainstream reporters were off base when they referred to the acquisition target’s Canadian newspapers? A: Yep. RRD’s press release did not explain that QW and Quebecor are unrelated. For business reporters at newspapers these days, if it’s not in the press release, it’s not news; consulting sources who actually know something about an industry is so Twentieth Century.

Q: Why is Donnelley’s proposal so good for the QW creditors? A: RRD is offering to give the creditors everything they would get from the bankruptcy reorganization, plus some Donnelley stock. And it’s not even asking QW to close the deal, it’s just asking to be named the stalking horse. That means the creditors would be free to seek better offers for parts or all of the company. If Donnelley presents a formal proposal that matches what it has outlined, it’s hard to see why the Quebecor creditors wouldn’t accept it.

Q: Did Donnelley make a good move? A: Most folks I’ve talked with think so. Its proposal will prevent the emergence of a rejuvenated, debt-free Quebecor World into an already troubled marketplace. Even if it doesn’t get all of QW, it will have a big say in what happens to the company’s assets.

Q: And what will it do with those assets? A: Shut down the least competitive ones, along with some plants it already owns, to stem the impact of overcapacity on printing prices and to eliminate redundancies. It’s hard to see Donnelley continuing to operate two large rotogravure plants in Nevada that are only 46 miles apart. One commenter noted a parallel with NewPage, which became the market leader in coated papers after buying StoraEnso’s North American mills and then undertook shutdowns to prop up paper prices amidst declining demand.

Q: What about competitors? A:Some think the new Donnelley would be large enough to crush the competition, but most people see RRD’s move as a real gift to competitors like Quad/Graphics, Brown, and Transcontinental. As someone noted, you can question how well NewPage’s strategy has worked for NewPage, but there’s no question it has been good for rival Verso Paper.

Q: And what about customers? A: I'm told that one discussion among publishing executives reached this consensus: “We’re screwed.”