29 January 2010
Quad/Graphics deal: who wins,
who loses
Special PrintCAN analysis

by Gord Griffiths

How did we know Worldcolor was going to be sold? Simple—it hadn’t changed the old Quebecor World signs on its buildings yet. At first blush it looks like RR Donnelley is the loser in this situation as it bid about US$1.5 billion for the business last year and was turned down. However this acquisition doesn’t close for about six months so there’s still time for Donnelley to put in a bid, especially as some analysts think this complex deal may turn out to be worth less than the Donnelley offer. So what happens when entrepreneurial printers like Quad/Graphics meet up with Worldcolor senior managers who are known as deal makers? From the cheap seats it looks like Quad/Graphics is talking about the access to more customers and product lines and Worldcolor is talking about the “beautiful synergies” (from job cuts and operational efficiencies). With the U.S. government’s priority to create jobs, and the fact that it’s cheaper to print in the U.S. than here, jobs will be lost in Canada. I figure for every two jobs saved in the U.S., at least three jobs will be lost in Canada.

As the number of competitors shrink, customers have fewer print options. However, even though Quad/Graphics is a well-respected, entrepreneurial company that’s strong in both the sales and operations side of the business, I think the market is shrinking faster than any consolidation that deals like this are creating. So, this transaction will not stop the downward pricing spiral that’s hurting all printers. 

The new Quad/Graphics will lose customers. Why? During the time of uncertainty, until the transaction is completed, and for the following year or two until the consolidation is rolled out, Quad/Graphics will be preoccupied with integrating the two businesses, giving competitors, like Transcontinental and mid-tier printers, a small window of opportunity to exploit this uncertainty and win customers.  

Suppliers will be hurt.  Quad/Graphics will consolidate its paper, ink and equipment purchases, leaving some suppliers without a major customer. However used equipment dealers could be the biggest winners.  

Quad/Graphics is a young company (the CEO is only 41 years old) with a focus on printing but it isn’t ignoring the impact of the digital world. If the deal gets done, this is the right opportunity at the right time and Quad could become the greatest force for change in the printing industry in Canada and it might push printers to get smarter or get out of the business at a faster rate.  

Gord Griffiths is a graphics veteran and a principal in BRS JUMP. Look for a more in-depth analysis of this transaction in an upcoming issue of Graphic Monthly Canada, PrintCAN’s printed sibling publication.
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