A creditor and a stock analyst are second-guessing Quebecor World’s decision to spurn R.R. Donnelley's acqusition attempts.
Quebecor World cannot show that it “fully cooperated with RRD and adequately considered the RRD offer in light of the best interests of the Debtors’ estates, rather than entrenched management’s best interests,” disgruntled creditor Riverside LLC stated in its motion to derail QW’s proposed bankruptcy-reorganization plan. Riverside, which bought unsecured claims against the big printing company from various creditors, also argued to a U.S. bankruptcy court that the plan improperly discriminates against holders of multiple claims.
A stock analyst who follows RRD predicted QW would face “a tough stretch” when it emerges from bankruptcy, scheduled for mid-July. Down the road, it may end up wishing it had accepted RRD’s offer last week to buy it, Charles Strauzer of CJS Securities told the The Canadian Press yesterday.
QW’s balance sheet will be stronger than when it filed for bankruptcy protection, but its ambitious goals will run smack into the reality of a difficult economy, the analyst said.
The court-appointed bankruptcy monitor in Canada, however, has endorsed the reorganization plan, on which creditor voting is scheduled to conclude on Monday. Ernst & Young told the court last week that the most recent Donnelley's offer "has some merit, but carries significant execution risks."
One risk to the merged company would be “a loss of customers seeking to diversify the supply chain,” the latest monitor’s report said. Indeed, some folks who do most of their printing with RRD and QW have told Dead Tree Edition they would try to move some business elsewhere so that the merged company would not have too much leverage over them.
Ernst & Young also noted that achieving regulatory approval might require that parts of QW be sold off, with unknown cost.
QW and RRD held "numerous meetings and discussions" during the four-week courtship, including an all-day meeting May 29 in Washington, DC, Ernst & Young reported. It described the discussions as "cordial and open.
QW insiders say the company's new name is to be revealed on Monday, presumably in conjunction with the reorganization plan being approved. Some media outlets have reported that the new name will be "Novink", but the insiders will only say that the name begins with "N" and has six letters.
One correspondent pointed out another name fitting that description: "NotRRD".
It is not clear that RRD derives any special benefit from acquiring Quebecor World in bankruptcy and conversely it is clear that if the sale were to get tripped up while the company was in bankruptcy it could spell disaster. It is hard to imagine that Quebecor stakeholders were ever going to get full comfort in selling to their #1 strategic competitor (who wouldn't necessarily be all that upset if Quebecor World ended up in tailspin on a deal break) in the context of a bankruptcy that has already last 18 months. Thus, the interim result is not wholly unsurprising. Once out of bankruptcy, Quebecor World (however it will be named) will have a new Board that will be able to weigh the merits of a deal from a much stronger negotiating position.
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