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April 7, 2010
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R.R. Donnelley has withdrawn its Notification and Report Form effective April 9, 2010 and will refile it on April 12, 2010, when the 30-day waiting period recommences. Donnelly said that it will refile its Hart-Scott-Rodino Notification and Report Form, which was originally filed on March 11, 2010, to show compliance with an antitrust law governing mergers and alliances.
Donnelley is the largest printing company in the U.S., providing various global printing services to a wide variety of businesses worldwide, as well as related services such as logistics and distribution for print customers and mailers.
R.R. Donnelley is actively engaged in making strategic acquisitions to enhance its geographical presence, boost its global outsourcing business and expand product and service offerings.
Since 2007, the company has acquired 8 companies. In February 2010, the company announced its plans to acquire Bowne & Co. for approximately $481 million in cash, or $11.50 per share.
Bowne has operations in North America, Latin America, Europe and Asia and offers digital one-to-one printing services for healthcare, transactional communications, financial services, marketing communications and other applications.
The acquisition was expected to close in the second half of fiscal 2010 and was expected to be accretive to R.R. Donnelley's earnings in the first full year after the close of the transaction.
The offer price represented a 65% premium to Bowne’s closing price of $6.97 on February 23.
The acquisition of Bowne would expand and enhance R.R. Donnelley’s offering to its current customers, while also creating an opportunity to provide its products to Bowne’s clients. We remain positive on the acquisition of Bowne. We believe the company’s continued focus on acquisitions will spur its already dominant market position and drive long-term growth.
While, Donnelly continues to acquire a large number of companies, which improves revenue opportunities, it adds to integration risks. Further, the company’s ongoing acquisition may continue to stretch its borrowing capacity.
Although the company has been successful in acquiring companies, we believe the delay in acquisition of Bowne could be an overhang in the near term.
Further, while the economy is on the mend, printers typically lag a recovery and Donnelley is suffering from overcapacity in the printing industry.
Moreover, lower paper prices and reduced demand for catalog, magazine and retail, colored books, logistics, office products, commercial print and direct mail product offerings and negative impact of price erosion in commercial print, catalog magazine and retail and forms and labels businesses are expected to lower sales in its Printing division.
Donnelley is an important player in the printing industry holding a large market share with strong fundamentals and various competitive advantages due to its large scale of operations.
We therefore rate the stock at Neutral.
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