RR Donnelley & Sons announces plans to split into three new publicly traded companies
The printing giant also announced second quarter earnings, reporting revenue fell 5.3 percent, while net income declined as the company looked to maintain margins
The spin-off bug has caught up with the printing giant RR Donnelley as the company announced today that it would split into three separate, publicly traded companies: PRSCo will be the printing company, FinancialCo will focus on financial communications services, and CMCo will be a multichannel communications management provider.
The track record of spin-offs is decidedly mixed, but generally they succeed where the business is growing so fast that maintaining a unified company structure would hold back the business segment being spun-off. But few spin-offs are announced these days because of explosive growth, rather they are announced in order to dump print publishing business, or it is sad to say, because spin-offs can be terribly lucrative for the executives involved.
It is hard to see growth being a factor here, the company also announced earnings today and reported that net sales declined 5.3 percent to $2.7 billion, while net income fell to $43.6 million from $65.6 million in the same quarter the previous year.
“Despite a challenging demand environment, we aggressively managed our cost structure to achieve a non-GAAP adjusted EBITDA margin of 11.3%,” said Thomas J. Quinlan III, RR Donnelley’s President and Chief Executive Officer. “As we look to the back half of 2015, we will continue to aggressively manage costs, which is reflected in our improved non-GAAP adjusted EBITDA margin guidance for full-year 2015.”
Companies diversify their portfolios of products in order to be able to weather downturns in any one area. Newspapers fought for years to be able to buy broadcast properties in the same cities they published in to both diversify and take advantage of joint sales opportunities. For the most part they failed to gain permission for such acquisitions but they bought into broadcast any ways in order to create more diverse media companies. Now many are spinning off their print properties leaving the new companies in a disadvantaged position.
Will RR Donnelley be a better company split into three parts? I don’t know, but I’m sure the execs and shareholders like the idea… a lot.
“As independent companies, each will have an enhanced ability to focus more intently on its customers’ unique needs,” Quinlan wrote in an online letter to customers. “Each will be even more nimble, with the ability to anticipate and respond quickly to changing conditions. Plus, each will have the talented employees, scale, proprietary solutions and the other resources needed to be a leader in its industry… right from its first day.”
Here is the spin-off announcement:
CHICAGO, Ill. – August 4, 2015 — RR Donnelley & Sons Company today announced that it intends to create three independent, publicly traded companies: one business focused on financial communications and data services; one business focused on publishing and retail-centric print services; and one business focused on customized multichannel communications management.
Thomas J. Quinlan III, RR Donnelley’s President and Chief Executive Officer, said, “Over the last decade, we have strengthened our business portfolio through a combination of organic growth and strategic acquisitions, developing new products and services, inventing fresh ways to serve customers, attracting additional talent and building information technology systems.
“We see a significant opportunity to unlock value by allowing these three businesses to pursue their own strategies and invest according to the unique dynamics of their respective industries. Each company will have the strategic focus, management resources and capital structure to enable it to strengthen its market position and pursue its growth opportunities, enhancing long-term value for stakeholders.”
The creation of these three independent businesses is expected to deliver the following strategic and financial benefits;
- Each business to focus on its distinct strategic priorities, driving opportunities to accelerate growth and enhance long-term value
- Greater flexibility to execute tailored business strategies and compete in evolving markets
- Even more focused brand strategy to support each business’s marketing plan
- Tailored capital structures reflective of each business’s financial and growth profiles
- Better-optimized investment policies
- Market recognition of standalone growth prospects and profitability
- Enable investors’ valuations to reflect each business’s unique operating and financial dynamics
Quinlan continued, “We recognize that parts of the current portfolio will be more successful pursuing different strategies, and that these particular businesses offer the scale, expertise, product and service mix and other resources to excel as standalone companies. Creating three independent companies will allow each to more quickly capitalize on opportunities created by continued technological innovation and globalization within the markets they serve.”
Financial Communications Services Company (FinancialCo)
FinancialCo will be a leading, financial communications services company serving both the investment and capital markets worldwide. With proprietary technology, extensive capabilities and deep subject matter expertise, FinancialCo will support its customers with content management, multichannel content distribution, data management and analytics, collaborative workflow and business reporting tools and translations services. FinancialCo’s one-stop-shop offering leverages a unique combination of technology, service and regulatory expertise built through the combination of RR Donnelley’s financial print business, Bowne Financial and EDGAR Online.
As a standalone company with trailing 12-month net sales for the period ended June 30, 2015 of approximately $1 billion, the company believes FinancialCo will be positioned to aggressively invest in leading technology and workflow tools to support its customer communications requirements in a growing and fast evolving marketplace and to generate strong margins and cash flow to capitalize on significant opportunities in content collaboration, data analytics and compliance/regulatory services.
Publishing and Retail-Centric Print Services Company (PRSCo)
Publishers, merchandisers and retailers worldwide trust PRSCo to prepare, produce and distribute their periodicals, catalogs, inserts, books, office products and directories.
As a standalone company with trailing 12-month net sales for the period ended June 30, 2015 of approximately $3.5 billion, the company believes PRSCo will continue to expand its unmatched scope of print-related capabilities to better serve customers worldwide and will be well positioned for further value creation through continued cost restructuring and accretive acquisition opportunities. The company’s expertise, deep customer relationships and strong cash flow generation are expected to support both organic and acquisition opportunities.
Customized Multichannel Communications Management Company (CMCo)
CMCo will be a global, customized multichannel communications management provider that assists organizations around the world in creating, managing and executing their multichannel communications strategies. CMCo will offer customized digital and printed communications services, including direct mail, short-run commercial printing, statements, business process outsourcing, supply chain management, logistics, creative design, content management, forms, labels, packaging, kitting and fulfillment and more.
As a standalone company with trailing 12-month net sales for the period ended June 30, 2015 of approximately $7 billion and deep relationships with Fortune 1000 customers, the company believes there are clear growth opportunities for CMCo driven by increasing demand for customized multichannel communications and it is well positioned to capture these opportunities by offering integrated solutions that help customers better manage their brand execution, marketing and supply chain strategies. CMCo is expected to have capital flexibility to fund growth investments and develop additional capabilities.
Transaction Details/Next Steps
The transaction is expected to take the form of a tax-free distribution to RR Donnelley shareholders of FinancialCo and PRSCo in two new, independent, publicly traded stocks. The company expects to complete the spinoffs prior to the end of 2016. Immediately following the completion of the transactions, existing RR Donnelley shareholders will own shares in all three companies.
The leadership, governance, corporate branding and other matters for each company are still being developed and the company will provide interim updates as appropriate.
RR Donnelley management intends to continue to recommend to the Board of Directors a quarterly dividend of $0.26 per share, consistent with its current level, until the transactions have been consummated. Following the completion of the transactions, each company will determine its appropriate capital allocation policy. While the capital structures of each company have not been finalized, it is expected that the currently outstanding RR Donnelley notes will remain at CMCo and that CMCo will receive certain cash proceeds in connection with the capitalization of each of PRSCo and FinancialCo.
The transactions are subject to customary conditions, including obtaining rulings from the Internal Revenue Service and/or tax opinions, execution of inter-company agreements and final approval by the company’s Board of Directors.
Centerview Partners LLC and BofA Merrill Lynch are serving as financial advisors to RR Donnelley. Sullivan & Cromwell LLP is serving as legal advisor.