Quebecor World - Just Say 'Why?'

It’s really disheartening to see a $6 billion organization on the penny stock blogs.

I never understand why, when a company knows this type of financial intersection is coming, they don’t act earlier – they end up doing immense long term damage to the brand. One analyst I was reading observed it had been a revolving door for leadership – I have to echo that. Quebecor has not been setup culturally or structurally to either attract, retain or reward the right people for the long term. There have been several  missed opportunities as the corporate culture failed to embrace the teams that built the operations Quebecor acquired. (I am thinking specifically of people like Marc Reisch post-World Color).

Quebecor’s main misstep in my view was to continue to view the US operation as if it were a collection of regional printers rather than a national brand and an interconnected service network that had to compete on its own in a no-holds barred marketplace. (Remember, in large contract printing this is the NFL) - and then ham-string their managers on the front lines and force them to run everything through the head office in Montreal.

A company with that large a footprint has to be an innovator not an imitator. One might argue that even their attempts at imitating how other companies are reinventing themselves with outsourcing models, and new digital strategies have fallen woefully short.

Admittedly it is hard to transform a large print operation overnight, ask Dennis Rediker at Standard Register how hard it is: It takes vision, tenacity, shareholder patience and money. In Quebecor’s case it could be done – but it would be long fought effort with the level of debt and cash.

More likely is that Donnelley, alone or in partnership with private capital would be interested in picking up the gravure operations that are the jewel in the crown. The gravure operations have a stable of major contract accounts and a production network that cannot be found outside Donnelley or for that matter duplicated. Any buyer of Quebecor would have to look beyond the somewhat antagonistic relationship that Quebecor has with some of its union groups – but then again, a fresh start might unlock new partnership opportunities on that front.  Quad Graphics would be a heaven-sent refuge for any Quebecor gravure plant. On the web-offset side Donnelly would find the offset contract relationships very attractive for the major magazines and short run-magazines and that would undoubtably engender a long process of re-locations and plant closures to rationalize that network.

KKR or Cerberus could assemble a dream-team’ to perform an operational recovery and part the company out over time. They did it with Bob Burton and World Color. Cenveo is a household name now in this type of deal but it is hard to see how if fits with their current strategies (but then again something with that big a footprint has a deal inside it to be made somewhere).

In my view Quebecor would find its highest value if the product groups were re-formed and sold as smaller stand-alone units. New brand identities and operational focus could be found and then the list of potential buyers expands. Those smaller units, better staffed, better positioned and marketed (or at least understood) would generate higher collective interest – Someone like Jim Conway at Courier Inc. has the vision and management team to buy and recover the book operations. The Sheridan Group TSG might also be interested in the short-run magazine/journal locations – that sort of scenario could play out across each product segment but it would be a longer process and involve some operational ‘heavy lifting’. Few have the stomach for that.

Wild card possibilities might include Michael Cunningham of CGI (nowDG3), Mike is the dynamic guy that built Cunningham Graphics, CGI Worldwide – somebody like that in partnership with a hedge fund might suddenly appear at the table. Or perhaps the American Color investors might want to buy the Quebecor gravure operations as a strategy to expand out of the cold-set offset and flexographic markets that have very limited growth opportunities. (What can their strategic Board discussions possibly revolve around in today's world?)

So for the moment, Quebecor has arm-wrestled Royal Bank to step in with some small re-financing, reportedly enticed by the future promise of fees associated with a wireless start-up Quebecor has in the works. (There is a reason hockey is the national sport). All this drama for a measly $100 million or so which still leaves the major traunche of debt still out there and no new break-through management strategies for the firm. Perhaps this gives them the room to conduct a more orderly sale if the short list of potential buyers have not already been snubbed or looked under the hood and decided this bungee-jump was not for them.

On the whole it is hard to identify a long list of entities that might have both the balance sheet and the appetite for ‘big-iron’ manufacturing in a world that it accelerating headlong into digital delivery and Web 2.0 communication models.