The thrust and parry over the acquisition of R.R. Donnelly & Sons (RRD), or more correctly, what remains of the former printing behemoth, is finally over. Atlas Holdings vs. Chatham Asset Management played out December in fine fashion upping the stock price offer seeking Superior Proposal status. On Thursday the 16th, Atlas conceded, and Chatham now owns what remains of the former print beast that was R.R. Donnelley (RRD). Chatham, LLC increased its prior offer to $10.85 per share in cash. It called on the RRD board to declare this offer a "Superior Proposal", which they did, and the deed is done. So, the gamesmanship paid off as the original offer from Atlas was $8.25. RRD negotiated 31.5% increase. Good for them…but what has Chatham gotten? We do know that Atlas will receive a $20 million compensation from Chatham per an original agreement between Atlas and RRD dealing with the LSCM acquisition.

With the deal now sealed, RRD will be going private and will no doubt pursue 1 of 2 paths: an Operational Excellence business model (OEBM), or splitting RRD up and selling it off in pieces.  As for these two options, why wasn’t OEBM already taking place already? RRD has been selling off units worldwide and in every sector they served (print, logistics publishing) for the past 6 years. Comments from the industry people we spoke with about the goings on had several insightful observations: In the health services sector, a major global competitor expressed: "Chatham will dismantle them (and) so I will be waiting to pick up the pieces. Grab your popcorn, it will be good entertainment. " In the Print, publishing and creative sectors most expressed observations along these lines: "Oh, I bet the vultures are circling!! Not exactly roadkill but there is always turmoil in change, and opportunity in turmoil."

These do not reflect the business RRD does, they reflect that they are not respected, and indeed seem to be regarded as not having a good brand. In fact, brand reputation is mentioned several times in the annual report in areas where printing companies must be strong. How that issue in regard to client support needs to be improved is not discussed. It seems odd that RRD has not moved more confidently in protecting what was once the brand to be envied in the print and publishing business. How will Chatham address that need to restore the brand? Or will they even bother to allocate capital to make that happen?   

 It is not that Chatham bought something they didn’t understand. They were the largest stockholders in RRD. They have offered to buy them numerous times over the past years, which the RRDs board has until now declined. So, they see value, and indeed their mission is to acquire assets of value.   

 Though RRD underscores its global presence, most of its revenue comes from North American entities. According to the eleven most recent quarterly reports, it represents $10.93 out of $14.98 billion dollars or almost 73% of its business. Looking at the financial highlights, RRD is under pressure with declining revenue from $6.94 billion dollars in 2017 to $5.11 billion in 2020 - or a 26% decline over four years and operational earnings declining from $211 million dollars in 2017 to approx. $78 million dollars in 2020 or a fall of 63%. The decline started well before the pandemic. So management will be under intense scrutiny, likely at every level of the company.   

 Whether Chatman sincerely wants to own RRD and how they can turn it into a business that can repay an investment of almost two billion dollars is a big question. Maybe their main interest is to maximize the price to have the highest return on the shares they own? Maybe they business on selling it off in pieces? Regardless, with only a profit of $78 million dollars, what merit is there to investing in capital equipment or strategic acquisitions?   

 The self-described benefits of the RRD business model have some contradictory reasoning. Cited in the annual report “loss of brand reputation and decreases in quality of client support and service offerings”, has been an ongoing issue for RRD. As the condition of the company declined, major clients have left for companies like Arvato (Bertelsmann) and O’Neil Digital Solutions. These health-based accounts are both profitable and difficult to displace from an existing provider. And the migration out of RRD was in part due to a perception of poor brand reputation and dysfunction among the business units. As for their packaging strengths, one has to wonder why the logistics operations were not better utilized in the overall value offering. For packaging, a full service (manufacture, pack out/fulfillment, delivery) offering is attractive. Again management thinking comes into focus.   

 As for the human aspect of this acquisition, consider the 30,000 employees. How many will survive the obvious need for a leaner operation? What does this do to the ability to grow? What does it do to morale? Considering the rise of the “Resignation Generation” and reluctance to return to traditional work environments, how will talent be kept, and how will new talent be attracted?   There are good and bad things about this for the rest of the industry. As the industry has been globalized and matured, excel sheets and management have driven the industry into a new historical moment. Top managers typically don't know much about the products and technologies - maybe not even what customers really need. 

Though we sometimes forget, being passionate about print and the technology enabling print is fine, but in the end printing is a business. In the "good old times," where most printing companies were operated as smaller family-owned businesses, the focus was elsewhere. Like a Mom ‘n’ Pop operation, if there was money left in the till and the end of day, you were doing OK. This assuredly is not how investors manage operations.   

 INKISH will continue to follow this odyssey of a once great presence in the printing industry. Stay tuned.