Special Report: What Does Quad's Worldcolor Acquisition Mean to the Marketplace?
Because there were already so few printers, the remaining acquisition possibilities fit on a pretty small corner of the chessboard. The smaller printers remaining all have a fairly large degree of free will, either because they are privately owned without immediate pressure to sell, or because they have sufficient financial backing. But as this merger demonstrates, printers may merge not because of shareholder pressure but because consolidation appears the only remedy for falling prices. I'm not so sure eliminating competitors can make up for the excess press and bind capacity out there, but that's the strategy behind this merger.
INBOX: How do you expect that its future as a public company and the scrutiny that comes along with Wall Street will affect Quad, and do you think publishers will notice a difference?
MAG EXEC: I think swallowing a larger, more diverse company will have more impact on Quad than its going public. In the short term at least, its need to shut plants and lay off employees will bring it far more scrutiny from the public, unions, governments, etc. than it is accustomed to.
D. EADWARD TREE: I don't think we really know what the "new Quad" will look like. Its usual approach is to achieve low costs by investing more in automation and new technology than the competition does, rather than by wringing the last penny out of old iron. I don't know if Wall Street will have the patience for that kind of long-term thinking.
BROWN: I'd be concerned. Not only will there be the classic short-term pressure to project frothy earnings, the printing industry is rather precisely the opposite of what Wall Street finds an appealing place to invest. Printing is mature, with bleak growth prospects. It involves labor, materials purchased from third parties, and large physical plants. Wall Street generally looks at such enterprises and asks, "What's that bad smell?" So the new entity will be offered no slack. It remains to be seen what kind of case the public company can make for itself. It could be a stable, well-capitalized business that captures a beefy chunk of U.S. printing revenues. But it can't make an exciting growth case. We'll have to see what the debt situation becomes. Worldcolor got a new lease on life (and a lot of debtors got pennies on the dollar) and now sports a pretty sparkly balance sheet. Quad's balance sheet is an unknown. And of course the initial public offering (IPO) itself hasn't played out, but it will add debt.