BY DARIN PAINTER
More by this AuthorTEN YEARS AGO, you needed both hands to count the number of major, direct-selling manufacturers in the forms industry. Today, you don't even need a thumb or a pinky.
Only three majors remain--Moore Wallace, Standard Register and Relizon--and only Standard Register existed as its current name a few years ago. Last month, RR Donnelley announced its plan to acquire Moore Wallace. Pending regulatory approval, the combined company will be a full-service commercial printer with approximately 50,000 employees and more than $8 billion in annual sales.
The industry has morphed from paper-based forms to essentially anything inovlving printed and digital communications. That trend, as well as the recent U.S. recession, has led to turmoil for the folks leading the majors: Their 21st century wish lists probably didn't include plant closings, cost-cutting initiatives and corporate restructuring. Still, the firms remain a force, achieving combined annual revenues of $5.7 billion. The industry's independent segment, which often battles the majors for key accounts, represents an increasingly larger slice of the printing pie(52.7 percent of total product shipments at retail value, up from 54.5 percent in 1998, according to
DMIA's Formtrac 2003 report). But distributors and manufacturers often struggle to compete with the big boys.
You have to hand it to the ones who can. Perceptive, aggressive independent firms can beat the majors. Success requires insight into what makes the three firms tick. To that end, we present a snapshot analysis of the strenghts, weaknesses, opportunities and threats of Moore Wallace, Standard Register and Relizon.
Name: Moore Wallace Inc. (The company will be known as RR Donnelley in the first quarter of 2004, pending regulatory approval of the Chicago-based commercial printer's acquisition of Moore Wallace.)
Location: Mississauga, Ontario, with executive offices in New York. (The combined company will be based in Chicago. Currently, RR Donnelley operates more than 200 locations in North America, South America, Europe and Asia.)
Employees: 18,800 (The combined company will have approximately 50,000 employees.)
Annual Revenues: $3.6 billion (The combined company will have more than $8 billion.)
Ownership: Moore Wallace (NYSE: MWI) and RR Donnelley (NYSE: DNY) are publicly traded; the combined firm will retain RR Donnelley's Wall Street ticker symbol. On Nov. 9, RR Donnelley announced plans to acquire Moore Wallace in a deal the companies valued at $2.8 billion. RR Donnelley plans to assume approximately $900 million in Moore Wallace debt. Upon completion of the transaction, RR Donnelley and Moore Wallace shareholders will own approximately 53 percent and 47 percent of the combined firm, respectively. On May 15, Moore Wallace was created when Mississauga-based Moore Corp. Ltd. bought Lisle, Ill.-based Wallace Computer Services Inc. for $1.1 billion in cash and stock. (Moore had tried to take over Wallace in 1995, but Wallace shareholders blocked the deal.)
Business in Brief: Moore Wallace offers print and digital business communication products through its three segments: Forms and Labels (its largest), Commercial (includes direct marketing services, annual reports, and automatic ID and data collection equipment and systems) and Outsourcing (also known as Moore Wallace Business Communication Services, includes print and mail services, electronic statements and database management services). The company operates 18 forms facilities, 12 labels facilities, seven direct mail facilities, and 23 warehouse and fulfillment facilities. Subsidiary PEAK Technologies Inc. is an international systems integrator of bar code data collection products and systems, enterprise printing solutions, and maintenance and support services. (RR Donnelley, founded in 1864, is one of the world's largest printing companies. It prints books (including the Harry Potter novels), magazines (including Reader's Digest) and catalogs, and offers services such as content management, digital photography, facilities management, integrated business branding, packaging and direct mail. The combined company will be among the Fortune 250.)
Leaders: Alfred C. Eckert III, chairman; Mark A. Angelson, CEO and director; Thomas W. Oliva, president and COO (Angelson will be CEO of the new RR Donnelley. William L. Davis is the retiring chairman, president and CEO of RR Donnelley.)
Clients: The firm markets primarily to large companies in the retail, finance, telecommunications and health care industries. Customers include Target Corp., American Airlines, H&R Block, The Sports Authority, Bank of America, UPS and FedEx. (RR Donnelley sells to most Fortune 500 companies, targeting mainly publishers, merchandisers, telecommunications companies and financial services firms.)
* Size, image and financial stability. To many end users signing multiyear contracts, the size of a potential vendor matters--and Moore Wallace is big. The new RR Donnelley will be huge. Its name recognition and reach (50,000 employees, $8 billion in sales) will be mighty. Prior to the deal, Moore Wallace's third quarter sales totaled $828.9 million, compared with second-quarter sales of $650.1 million. Net earnings for the third quarter were $26 million, exceeding the company's expectations. Moore Wallace expected $50 million in cost savings through synergies and eliminating redundancies stemming from the merger of Moore and Wallace. Prior to the merger, Moore's then-chairman, president and CEO Robert G. Burton led a financial turnaround of Moore, cutting approximately $100 million from expenses by closing plants (including integrating U.S. and Canadian facilities), selling non-core businesses and restructuring internally. Burton stepped down at the end of 2002. RR Donnelley expects the combined company to generate cost savings of at least $100 million annually in the first 12-24 months after closing. The anticipated savings would result from eliminating duplicate administrative and infrastructure costs, reduction of procurement expenses and asset realization.
* Diverse products and high-quality plants. The combination of Moore and Wallace yielded a firm that boasted a vast amount of products and services, including form/label combinations, packaging, direct marketing, digital workflow and database management, web printing, on-demand mailings, kitting and fulfillment, and more. The company's offerings are logical complements to RR Donnelley's commercial printing prowess, and the combined firm is a "global powerhouse" with a product portfolio that will satisfy "virtually every print and print-related need," says Mark A. Angelson, who will serve as its new CEO. The new firm also boasts high-quality plants: In July 2002, Wallace's St. Charles, Ill., facility won American Airlines' Platinum Supplier Award for the third consecutive year, and was one of the company's best-selling tools to impress prospects. Moore Wallace's Outsourcing segment, which provides distribution of critical documents, allows clients to focus on their core businesses without the expense of in-house print and electronic resources.
* Technology infrastructure and online solutions. In October 2002, Wallace ranked No. 20 on the InformationWeek 500 list, the fourth consecutive year the firm appeared on the list of the country's most innovative users of information technology. Moore Wallace's integrated print solutions tool, @winXS, allows customers to manage all aspects of printing from their desktops, including order placement, inventory management, and supplier communication.
* Minimal focus on research and development. Part of Burton's cost-cutting included closure of Moore's Grand Island, N.Y., research and development facility. The move generated an estimated $15 million in savings, but exemplified a trend that's affecting all three majors as well as American businesses in general: the focus on short-term gains instead of long-term growth. "R&D says a company is betting on something 10 years from now, not tomorrow morning," says Robert J. Cronin, managing partner of The Open Approach, a Westmont, Ill.-based print consulting firm specializing in strategic planning, marketing, sales training, product development, corporate direction, recruiting, business brokers, alliances, acquisitions and new business opportunities. He served as Wallace's CEO for eight years, growing the company from $400 million in annual sales to $1.5 billion. "There's hardly glamour in this industry, so if you miss a quarter, you're dramatically punished for it. That's a problem with corporations in most industries today--they have a short-term horizon."
* Lack of growth in its Forms and Labels segment. The company's forms business, especially, is stagnant. The segment remains challenged by the U.S. economy and competitive pricing pressure. Officials at RR Donnelley said the combined company's ability to achieve expected revenues will depend partly on its ability to migrate from paper-based forms to digital services.
* Cross-selling to penetrate large accounts. Moore Wallace and RR Donnelley didn't compete often for accounts prior to the pending acquisition and don't have significant overlap in products and services. Direct mail is one product both firms sell, but the companies are far from twins (unlike Moore and Wallace, which both sold forms, labels and document management solutions). Cross-selling will be a key to the new RR Donnelley's growth strategy. For example, RR Donnelley prints books and magazines for New York-based media firm Time Warner Inc., but it can't print the invoices for those publications nor the scannable labels they're shipped in. It can't send monthly statements to Time Warner's cable TV customers. That may change soon. According to Angelson, Moore Wallace's penetration into its largest companies' print budgets is 15 percent. "We have an open field before us as we go after that remaining 85 percent," he says.
* Embracing RFID. Moore Wallace was a partner of Delta Air Lines' when the airline began tests of Radio Frequency Identification, or RFID, technology this fall. RFID technology uses small computer chips to send and receive information as radio signals, and helped Delta track passenger baggage and air cargo shipments. Delta embedded RFID chips in the bag tags of passengers traveling from selected flights from Jacksonville, Fla., to its Atlanta hub. The 30-day test, conducted in coordination with the Transportation Security Administration, used more than 40,000 disposable 900MHz tags. Prior to the Moore/Wallace merger, Moore was named the sole U.S. converter of RFID labels for Gemplus Tag, one of the world's largest manufacturer of smart labels.
* Partnering with IBM Canada. Prior to the merger, Moore acquired the assets of Document Management Services (DMS), a division of IBM Canada Ltd. Specializing in printing and distribution of client communications, DMS is the second largest print and mail service provider in Canada and is a leader in the outsourcing marketplace. As a part of the acquisition, Moore entered into a multiyear marketing agreement with IBM Canada whereby Moore is the preferred provider of print services in Canada for new business proposals and for IBM's existing outsourcing clients.
