R.R. Donnelley Stalks Quebecor World

For many large American publishers there are only three printing companies. Soon, there may be only two.

R.R. Donnelley stunned the printing and publishing industries today by announcing its offer to be the "stalking-horse" bidder for rival Quebecor World, which is about to emerge from bankruptcy reorganization. It offered Quebecor's creditors, who essentially own the company, everything they would receive from the reorganization (which for many unsecured creditors is at most 50 cents on the dollar) plus 15% ownership of Donnelley. Donnelley stock closed down 9% today, making the stock being offered to the Quebecor creditors worth about $360 million. (See also "Q&A on the Donnelley-Quebecor Deal".)

Donnelley's proposal letter expressed confidence that the deal would be approved by the U.S. and Canadian governments, but the word "antitrust" was on the minds and lips of many major buyers of printing today.

Donnelley may point out to government agencies that the United States has thousands of printing companies. But only three -- Donnelley, Quebecor, and the privately held Quad/Graphics -- have rotogravure publication presses. And only those three have co-mail pools that typically contain at least several million magazines and/or catalogs. As good as they may be, "second-tier" printers with only offset presses and smaller co-mail pools simply cannot compete with the Big Three for much of the long-run catalog and magazine work in the U.S.

For parts of the market, such as for rotogravure magazines inserted into newspapers (like Parade and American Profile) and for telephone directories, it's really the Big Two, with Quad mostly or completely out of the picture. Quad has been trying to break into the newspaper-insert magazine market for years and reportedly built its Martinsburg, WV plant because it (mistakenly) thought it had a deal to print USA Weekend.

But a foray into coupon printing years ago that nearly bankrupted the company has engraved a commandment into Quad's corporate DNA: Don't get into price wars on printing. The Wisconsin-based company tends to compete instead with features like high-speed binderies and efficient co-mail pools -- which are irrelevant in the if-we-get-this-business-at-this-price-will-we-have-any-profit-margin? world of printing Sunday newspapers.

With its stalking-horse bid, Donnelley would set the bar for anyone wanting to buy all or part of Quebecor World, though the creditors would still be able to seek better deals. Even if the proposal does not pass anti-trust muster, it could be a winner for Donnelley by preventing competitors from buying Quebecor plants at fire-sale prices and then using their nearly debt-free status to undercut Donnelley.

I would love to hear your concerns, questions, or insights about the Donnelley proposal. Please email them to Dead.Tree.Edition@gmail.com. I promise not to attribute any comments to you or your company without your authorization.

Monkeying Around with Postal Pallets

Where have all the pallets gone, U.S. Postal Service officials sometimes wonder.

The Postal Service spends millions of dollars annually replenishing the supply of pallets, tubs, mailbags, and the like because so many get diverted to other uses each year. Pat Donahoe, USPS's COO, explained to the Mailers Technical Advisory Committee (MTAC) recently that, sometimes, getting the pallets back is no easy matter.

He displayed the following photo from a major U.S. zoo to prove his point.


Do you suppose there's an Intelligent Mail barcode on these orangutans?

It's Silly Season for the Paper Industry

Has the North American paper industry gone completely bonkers this spring? (Not that it was ever a particularly sane industry).

AbitibiBowater kicked off the strange doings last month when it revealed to a bankruptcy court that it owes $62 million to the Finance Authority of Maine. How did that happen? The company has no operations in Maine.

But the silliness was really concentrated in the coated portion of the industry, where demand dropped a record 32% in the first quarter versus last year and shows no signs of bouncing back. In light of that sorry state of affairs, consider the following recent headlines:

• Sappi filed plans with the state of Minnesota to build a huge coated-paper machine at its Cloquet mill. If press reports are to be believed, the machine would have capacity to make about 700,000 tons per year, nearly double that of any competing machine on the continent. This is the same Sappi that just reported a quarterly loss and said it expects to idle even more machines because of declining demand.

• An investment group announced it is spending $62 million to buy and upgrade Tembec’s shuttered St. Francisville, LA coated-paper mill. That operation was a money loser even before the latest wave of reduced demand and capacity shutdowns. How can it survive now?

• Former employees of NewPage’s closed Kimberly, WI mill are mad that the company would sell the operation only to someone who would not make coated paper there. NewPage closed the high-cost mill to ease the continent's oversupply of coated paper, where it holds the #1 position. Why would anyone dream that it would undo those efforts at market stabilization by selling to a competitor at a fire-sale price?

• Capping off the silliness was Verso's revelation Thursday that the federal government paid it nearly $105 million last quarter in "black-liquor" credits. During most of the quarter, the company's stock was worth less than half that amount.

What should we make of these events that seem to defy the grim reality of the coated-paper business? Sappi’s move may be a matter of posturing – perhaps to wring concessions from unions at other mills, including its recently purchased Kirkniemi, Finland operation that has had recent labor strife. Or perhaps it is signaling to Congress that it will invest in U.S. paper making if the huge black-liquor subsidy is continued.

The new owners of St. Francisville may also be grabbing for those credits by just reopening the pulp mill. And perhaps they will convert the mill to make some other product, such as linerboard or biofuels. It’s hard to envision 60# coated #3 being made again at the high-cost mill.

The Kimberly workers? They were obviously not able to read the writing on the wall that the plant had been in bad shape for nearly a decade -- or that, unlike previous owners (Repap, Consolidated, StoraEnso), NewPage tends to euthanize terminal cases, not put Band-Aids on them.

And don't ask me to explain the logic behind the federal government paying perhaps billions of dollars this year in alternative-energy credits to Verso and other U.S. companies for using black liquor as fuel -- something kraft pulp mills around the world have been doing for decades. There is no logic.

Poe-Tweet for Twitter Quitters

If you believed some of the pundits earlier this year, no one had time to read printed matter any more because they were too busy with Twitter.

This print dinosaur in recent months has learned various aspects of Web 2.0, or 3.0, or whatever -- using Google Reader to keep track of various Web sites, participating actively in LinkedIn, and adding a button on this Web site for sharing articles via Digg, StumbleUpon, and the like.

But I could never get my head around Twitter. How can anyone say anything useful in just 140 characters, the maximum per “tweet”.

It turns out that even those who have tried Twitter are having the same trouble. Nielsen Online recently revealed research suggesting that most people who sign up for Twitter quit within a month.

Still, trying to keep an open mind, I thought I’d see what it’s like to compose a tweet. I figured that using poetry and writing about Twitter itself would lead to concise language. I did my best, but still came up a few characters short:

Join Twitter, some urged.
I pondered it.
OMG, they pleaded,
Get with it.
But most tweeters, I read,
Abandon it,
Finding most tweets 2b
Just pure s

Gotta run. I want to finish the actual book I'm reading.