By Gail Nickel-Kailing, Senior WTT Editor

December 18, 2006 -- This year is coming to a close, and what a year it has been! Lots of activity in the mergers and acquisitions column, the economic news was good, and Graph Expo looked, sounded, and sold like the great events of the past! 2006 – mid-point between drupa 04 and drupa 08 – will go down in history as a positive year for the “off-line media” industry. Included in this summary are:

• Mergers and Acquisitions – the good, the bad, and – particularly – the ugly!
• A patent case you should watch – Donnelley vs Quark and Creo
• InnerWorkings IPO
• Strategic changes at Heidelberg – DI no more
• People – who’s going where?
• Tradeshows and publications – new, old, and gone

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Mergers and Acquisitions
There were a number of M&A stoires in 2006, but the two biggest and most contentious were the move by Cenvo Inc. to take over Banta Corp. and the proposed merger between Valassis Communications Inc. and ADVO Inc. Other mergers included the much-denie. -but-finally-ballyhooed Xerox/XMPie marriage, the also denied-then-finally-admitted merging of NAQP and NAPL, Pitman’s acquisition of Charrette in July, and EFI’s acquisition of Jetrion in October. And let’s not forget that InfoTrends (AKA CAP Ventures) was acquired by its event partner, Questex Media Group.

Cenveo and Banta
Cenveo’s attempt at a hostile takeover of Banta Corp. took the post position as the biggest news of the year. From August to October letters, press releases, and share purchase offers fluttered through the air when Robert Burton Sr., Chairman and CEO President of Cenveo, carried out his takeover attempt on a public stage.

Mr. Burton – never one known to play his hand discretely – kept the pressure on Stephanie Streeter, Chairman, CEO and President of Banta from late summer through mid-autumn. On Halloween, RR Donnelley pulled a trick out of its hat and trumped Cenveo’s offer to reach agreement with Banta in a deal that brought shareholders a share price of $52.50. Such a treat for the shareholders!

Read the “blow by blow” coverage – and take a look at Cenveo’s waiver of its ethics code – at:

• Burton vs. Creo, Burton vs. Cenveo, now Burton vs. Banta: Will History Repeat Itself as the Juggernaut Keeps Rolling?
• Banta Applies Shark Repellent: Will Its Preemptive Moves Be Strong Enough To Keep Cenveo from Sinking Its Teeth?
• How RR Donnelley Snatched Banta Away from Cenveo: Retracing the Negotiations from Deadlock to Done Deal
• Cenveo Board Waived Its Ethics Code During the Takeover Attempt of Banta: Was This Ethical?

Valassis and ADVO
It sounded good… In July, Valassis, a leading direct marketing services company, agreed to acquire ADVO, “the nation’s leading direct mail media company,” for $37 per share in cash. The numbers: a deal worth about $1.3 billion, combined 7,900 employees in nine countries; 94 of the top 100 advertisers in the US, and penetration of 90% of US homes. What’s not to like about that?

Unfortunately, sometime between the signing of the pre-nups and the wedding ceremony, Valassis got cold feet. ADVO sued – to force the “marriage” and Valassis counter-sued. The trial is in progress now. Here are some selected comments from the companies’ pre-trial briefs (links to the briefs are available at the end of this segment).

Valassis said:

• … Valassis was defrauded in the purchase of ADVO.
• … ADVO insisted that prosperity lay ahead.
• Valassis was shocked to learn in late July that the true “actual” third quarter results showed operating income of $12.7 million, $5.3 million (or 30%) below the “on target” forecast that Valassis had been given on the eve of signing.
• ADVO deliberately lied to Valassis to induce it to sign the Merger Agreement.
• As a result of ADVO’s wrongful actions, Valassis is no longer obligated to purchase a company that is earning one-fifth the operating income represented to Valassis when it signed the Merger Agreement.

ADVO said:

• Everything we learned was positively rosy. That’s Valassis’s line today.
• It turned out that some actual results – well, not annual or quarterly results, but some internal, interim, monthly, yet to be vetted and audited results – were wrong. By a couple of million dollars (all italics shown are in the original document). If we had known that, Valassis claims, we would never have done this $1.3 billion deal.
• They didn’t know? If they didn’t know, they must not have been listening when ADVO told them, as their employee’s own contemporaneous notes reflect, that SDR was a billing “nightmare.” (Editor’s note: SDR is an Oracle-based enterprise-wide order entry and tracking system.)
• Certainly they couldn’t have been paying attention when they read ADVO’s May 2006 10-Q, the one that talked about how “disruption” from “unforeseen difficulties with the transition [to SDR] could adversely affect “results, and could negatively impact” “the Company’s ability to maintain internal controls.”
• The evidence will show that Valassis – and particularly its CEO, Alan Schultz – wanted ADVO, and wanted it very badly.
• Valassis’s shareholders, the undisputed evidence will show, were outraged.
• Valassis now realized it had to find a way out. Which is why we are here today.
• Valassis made a contract, and it is bound to it under Delaware law.

ADVO’s stock price took a big jump when the merger was announced, a big drop when Valassis tried to back out, and has pretty much held its own since. Valassis stock price, on the other hand, took a dive to the cellar and stayed there. The two are now in settlement talks.

See WTT coverage up to to September 13, - Turnabout: ADVO Countersues Valassis To Force A Merger. Read the WTT synopsis of the Valassis/ADVO “fracas” – as the Wall Street Journal called it.

Want to read the pre-trial briefs filed by both parties? Go here for Valassis’ version of the story, and here for ADVO’s version. ( linked files are Adobe Acrobat files)

RR Donnelley and Office Tiger
In March, Donnelley agreed to acquire Office Tiger, a leading provider of business process outsourcing (BPO) services, for approximately $250 million in cash. Office Tiger, headquartered in New York, provides integrated onsite-offshore BPO services to Fortune 500 companies and to professional services firms through its operations in North America, Europe, India, Sri Lanka and the Philippines.

This acquisition was Donnelley’s second acquisition of a BPO service provider in less than year, an interesting move away from printing to a variety of document-based services. Then Donnelley swung back to printing with the acquisition of Banta. Might sound like another reversal of strategy, however Banta has a large supply chain management business line. This move sure makes for an interesting array of service offerings.

Xerox and XMPie
On May 7, Israeli newspaper, Globes, published an announcement that Xerox was “about to acquire Israeli start-up, XMPie Ltd. – provider of variable information software that enables cross-media, personalized marketing programs – for $40-$50 million. Yoram Levanon, General Manager of Xerox Israel Ltd, seemed to have jumped the gun, saying “I am very pleased at Xerox’s decision to invest in Israel.” XMPie was apparently not available to comment at the time and US representatives of Xerox denied any acquisition – loud and long. Until October, that is, when Xerox Corp. announced that it had agreed to acquire XMPie for $54 million. For WhatTheyThink analysis see: Xerox to Acquire XMPie; Includes WTT Analysis and comments from Kodak.

NAQP/NAPL
Effective November 1, The National Association of Quick Printers (NAQP)/PrintImage, merged into NAPL (National Association of Printing Leadership) giving quick printers membership benefits and a stronger voice in NAPL. As denials were flying over more than a year, Frank Romano called it “the world's first non-merger merger,” saying “This allows them to issue a non-denial denial about a non-committment committment” in Graphics Communications World. For details see: Merger Of NAQP With NAPL Approved By Memberships Of Both Associations

Pitman and Charrette
Pitman Company, North American graphic arts supplier, acquired Charrette LLC, provider of digital and traditional imaging supplies, equipment and services to the graphics, corporate and technical design marketplaces, and the largest provider of wide-format inkjet equipment, supplies and services in the U.S. Terms of the acquisition were not disclosed. For more commentary go to:

• Pitman Acquires Charrette: A Conversation with Joe Demharter
• With Charrette, Pitman Crosses Chasm into Display Graphics

EFI and Jetrion
EFI reached out again into new territory with its acquisition of Jetrion, adding expertise in inks and custom printing systems for labels and packaging. It was a $40 million cash deal and a strategic move for EFI which already had a strong presence in the inkjet printing market with its acquisition of VUTEk. As to why it was a good strategic move for Flint Ink to sell, that’s not clear. For two views of the story, go to:

• EFI to Acquire Jetrion: Includes Comments and Analysis from WhatTheyThink.com.
• EFI & Jetrion: Good Deal for EFI, Bad Deal for Flint Ink.

Donnelley vs. Quark and Creo – Alleging Patent Infringement
In January, Donnelley put Quark and Creo in its sites and took aim at variable data printing and “personalized” book production. Donnelley holds patents on “apparatus and methods” for processes that produce personalized/customized documents and books.  

Very little was said once the suit was filed. However these could be critical patents for companies providing software for the composition of variable data documents and books. Wading through the legalese – we came up with three issues which software vendors should be aware of:

• Patent No. 6,205,452 (issued March 20, 2001) is focused on the display and production of “variable information, including variable graphics information, on a display device, such as a computer network or a demand printer.” With the usual caveats that there are no legal experts on staff at WhatTheyThink and that this is not legal advice, it sure looks like this patent might cover the most common method of creating VDP documents. Template pages with fixed information and place holders for variable information are generated and graphic images are generated from database information and overlaid on the document. In this instance the graphic images are described as “graphs” so it might be assumed that we’re talking about dynamically generated graphs and charts.
• Patent No.6,327,599 (issued December 4, 2001) describes “an apparatus and method” for controlling an electronic press, which develops multiple template pages for fixed data and variable data. From a database variable printed information is applied to the template pages.
• Patent No. 6,844,940 (issued January 18, 2005) which refers to a method for assembling a book such as: the steps of specifying pagination information including an indication of whether a page is to be selectively included in the book, determining whether the page is to be assembled into the book based on the pagination information, and generating page description language instructions for production of the book in accordance with the pagination information.

It’s been nearly a year since this lawsuit commenced and there has been very little exposure about something that could be a critical issue for producers of variable data printing and customized or personalized books. Depending on the judge in the case – as we saw in the On-Demand Book Machine case in 2004 (link: A Patent for Books On Demand? An Inside Look at ODMC versus Lightning Source, Amazon & Ingram) – the definition of a “book” could be expanded to mean any kind of document bound in any way. We’ll keep an eye on this one! Read more here: Broad Ramifications in RR Donnelley's Charges Of Patent Infringements by Creo and Quark?

InnerWorkings IPO
So who is InnerWorkings and what is a “provider of print procurement solutions to corporate clients?” Whatever they’re doing, it appears they’re doing it right.

InnerWorkings is – in essence – a print brokerage that uses proprietary print procurement technology to gather print specs, select a list of suppliers, collect and compare bids from suppliers, and present quotes to clients. Once the quote is approved, the order is printed and InnerWorkings manages the process including QC and invoicing.

At one time “Spec and Bid” was a dirty word (sorry, that’s three words), now investors are happily buying shares which have continued to increase in value since the IPO. See the 50-day rolling average in the accompanying chart.

In August, InnerWorkings offered 10,590,000 shares at $9, with a “First Day Close” of $10.45, that’s an increase of 16% the first day – not bad! The current price is well over $17 a share and the company has a market cap of more than $765 million. In October, InnerWorkings acquired privately-held Applied Graphics, Inc., a leading West Coast provider of print management and print-on-demand services.

Strategic changes at Heidelberg – Cutting DI Loose
Over the last few years Heidelberg has shedmanyl of its business linesto focus ont its sheetfed printin, prepressg and bindery and finishing equipment. This year the company trimmed down to conventional offset printers by eliminating its direct imaging products – the Quickmaster and Speedmaster DI lines.

Talk about a pin-point strategy! Obviously Heidelberg is following the law; Law #1 and #2 of the 22 Immutable Laws of Marketing (Ries, Trout, 1993), which are:

• #1: The Law of Leadership - It is better to be first than it is to be better.
• #2: The Law of the Category - If you can’t be first in a category, set up a category you can be first in.

Rather than spread themselves all over web, digital, direct imaging, and sheet fed printing, Heidelberg has re-staked their claim on a space they’ve been in for decades – high-speed, sheetfed, offset printing. See: Exclusive Report: Heidelberg Announces End of Life for its Quickmaster & Speedmaster DI Press Lines. Note that Heidelberg will continue to provide support for equipment in the field.

People – And Who’s Going Where?

• In January, Transcontinental lost André Préfontain as president of its media division and Daniel Denault as CFO. Transcontinental CFO and President of Media division Resign, Benoît Huard was appointed VP/CFO in March. Benoit Huard appointed Vice-President and Chief Financial Officer of Transcontinental. In June, Natalie Larivière was named as President of Transcontinental Media, replacing Préfontain. Natalie Larivière Named President of Transcontinental Media.
• Barb Pellow resigned as CMO for Kodak Graphic Communications Group in January and took the position as InfoTrends’ Strategic Director for its Business Development Strategies advisory group, announced in April. Pellow to Lead New InfoTrends Advisory Service Assisting Printers with Business Strategies.
• Mark Johnson was named CEO of Four51 in April. Four51 Strengthens Executive Management Foundation for Continued Growth, Expansion and Rapid Adoption.
• Bruce James, Public Printer, head of the US Government Printing Office, announced his retirement in April. Public Printer Bruce James To Retire After Eventful Tenure.
• Kodak named Jeff Hayzlett as the new CMO for its Graphic Communications Group in May. Jeffrey Hayzlett Appointed Chief Marketing Officer for Kodak’s Graphic Communications Group (GCG)
• In July, J. Joel Quadracci took over as president/CEO of Quad/Graphics; Thomas Quadraccci, then Chairman/CEO has retired. Quad/Graphics Names J. Joel Quadracci to Succeed Retiring Chairman & CEO Thomas A. Quadracci.
• Adobe made Randy Furr EVP/CFO in May and he resigned in November. Adobe Systems Announces Resignation of Chief Financial Officer.
• Comings and goings at VistaPrint happened all year long! Paul Flanagan resigned as CFO of VistaPrint on July 3 per the company’s SEC filing, replaced by Harpreet Grewal in September. In December, Wendy Cebula was named EVP/COO, replacing Alex Schowtka.
• In October, Thomas J. Vacchiano Jr. became President/EO of X-Rite. X-Rite Announces New CEO, Tom Vacchian
• Raymond Schiavone took the reins at Quark as CEO in October. Quark Names Raymond Schiavone President and CEO
• Banta named Alison Heiser as VP/Chief Customer Officer in November – talk about timing!
• Yves Rogivue resigned as MAN Roland’s CEO, to be replaced by Vince Lapiinski. Rogivue will join Muller Martini in 2007. For more: Yves Rogivue, departing CEO of MAN Roland NA, to Join Muller Martini and Vince Lapinski to become CEO of MAN Roland's North American Operations in 2007.

Tradeshows and publications – additions/deletions

• Xplor and Graphics of the Americas – the first “co-location” in February.
• PrintFest 2006 – first new event aimed at the commercial print market in years, brought to us by the original founders of the Gutenberg Festival.
• Digital Smart Factory is new in 2007.
• Adobe’s Momentum in Print – first appeared in January, never to be heard of again…
• VuePoint and Seybold Seminars are gone perhaps forever.
• In-Plant Printer and Small and Commercial Printer, from Innes Publishing, have merged into one magazine.
• Electronic Publishing, industry trade magazine, to print no more.

Please offer Gail your feedback! She can be reached at gail@business-strategies-etc.com

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More About Gail Nickel-Kailing

Gail Nickel-Kailing is a senior marketing and strategic planning consultant experienced in marketing technology-based solutions and services. She provides business counsel and marketing assistance to companies seeking to increase profits and revenues and reduce costs through business process improvement and implementation of information or workflow management systems. Through Business Strategies Etc. she offers services such as marketing planning and management, business and product development, and other support services for national and international clients.

Representative projects include:

· Development of channel marketing and collateral distribution programs incorporating electronic and print-on-demand documents as well as traditionally printed promotional materials and direct mail, for manufacturers offering a wide range of products, including commercial exterior lighting, recreational vehicles, water treatment products, and others.

· Detailed mail systems analyses resulting in recommendations for operational and procedural improvements to capture cost savings completed for companies in the following industries: insurance, banking, catalog and direct mail, specialty printing, and government.

Gail has also held executive positions in companies such as Printable Technologies, Firstlogic (formerly known as Postalsoft and recently acquired by Business Objects), CAPVentures (now InfoTrends) and ImageX, a provider of B2B print procurement software and services (acquired by FedExKinko’s in 2003)

Ms. Nickel-Kailing is also an author, journalist, and nationally recognized speaker regarding printing and mailing, including web-to-print, variable data printing, and direct mail. She is a magna cum laude graduate of the University of Wisconsin, Eau Claire WI. She can be reached at gail@business-strategies-etc.com.

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