R.R. Donnelley Prints a $481 Million Deal for Bowne

In 1775, Robert Bowne started a stationery store -- selling writing papers, quills and even furs -- called Bowne & Co (BNE). A few years later, he moved into the printing business, which was certainly a smart move. Now, the company is a top player in the industry.However, because of its focus on the financial services industry, Bowne has had a tough time over the past couple years. So it is in this context that the company has agreed to sell out to R.R. Donnelley & Sons (RRD) for $481 million, or $11.50 per share. Keep in mind that Bowne's stock price was nearly $17 in mid- 2008.

While it must have been a hard decision, Bowne realizes that it needs to find scale and R.R. Donnelley will provide that.

Background on the Deal

Bowne's main focus is on helping companies print shareholder documents, such as 8-Ks, 10-Ks, proxies and so on. It's a complicated business because of the many regulatory requirements. At the same time, shareholder communications demand accuracy and speed. This means making changes on a 24-hour basis.

In terms of its footprint, Bowne has 50 offices across five continents, a network of sophisticated printing facilities and 2,800 employees. There are also a variety of web-based technologies that allow customers to manage their projects.

Unfortunately, with the credit crunch, there has been a plunge in capital markets activities, such as with M&A and IPO transactions. The volume of business for Bowne has declined substantially.

To help deal with this, the company has slashed $100 million in costs since 2007. The result has been a decline in fixed costs from 40% to 28% of revenues.

Bowne is likely to show strong cash flows when capital markets transactions return to normal levels. In fact, R.R. Donnelley expects the acquisition to be accretive to earnings in the first full year after the closing of the transaction (which is expected to happen in the second half of this year).

What's Next for R.R. Donnelley?

Along with its acquisition announcement, R.R. Donnelley also reported its Q4 results. There was a loss of $78.6 million, or 39 cents per share, compared to a $684.2 million loss, or $3.35 per share, in the same period a year ago. Revenues dropped 8% to $2.6 billion.

But R.R. Donnelley was able to realize cost synergies and generate $1.4 billion in cash flows for the past year, up from $407.8 million in 2008. In fact, the company foresees revenue improvement in 2010 (in the low single digits).

And the success has come from an aggressive multi-part strategy. For example, R.R. Donnelley has introduced new technologies, such as iPhone apps; built and acquired new facilities; invested in startups, like Helium; and formed strategic partnerships, such as with Hewlett-Packard (HPQ).

But the key success factor is likely to come from acquisitions. And given R.R. Donnelley's strong financial position and access to capital, the company has probably just begun its deal-making.
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