Printers
and publishers can’t seem to get a break, or at least not the respect
that is deserved by industries that have for centuries been the core
transmitters of knowledge and political freedom. (I know – that’s a bit
heavy, but it’s true). Facebook has announced that its latest smartphone
app which is designed to personalize and replace our newspapers is
named “Paper.” The app offers news feeds curated by real live human
editors, divided into “sections” such as sports and food, just like a
real printed newspaper. Facebook obviously chose to name its new app
“Paper” to impart the credibility we accord our printed news media.
Should printers and publishers be flattered by the name or upset that
the next generation will reach for their smartphone to read the morning
“paper”?
Paper - that basic and most fundamental substrate of our
industry - was at the core of a wide variety of deals announced in
January, and those deals are likely to impact future supply and pricing.
Assuming that the decline in demand for printed products levels off or
slows down at some point, as a result of the transactions announced,
printers are likely to have less available supply and a more limited
choice of suppliers to pick from when they are sourcing paper in the
future.
Right now, the demand for paper continues to decline. In
response, two of the largest remaining US companies that manufacture
printing papers reached out to each other and plan to merge. Drowning in
debt, they apparently hope to hold each other above the surface. In a
deal reported as “complex” and “essentially all debt,” Verso Paper
announced that it was acquiring NewPage Holdings, forming the largest
manufacturer of coated printing papers remaining in the US. However the
buyers, Verso, are not really buying NewPage, rather they have put
together a deal structure in which Verso will provide management and
other services to NewPage, but NewPage will be kept at arms’ length as a
separate company. In other words, “if we make it to shore, then great,
we’re partners,” but “if you drown brother, well then thanks for the
fees and services, and see you at your funeral.” Could this turn out to
be an example of tying two rocks together, in hopes that they will
float?
The business of distributing paper is also set to complete
another round of consolidation. Not too long ago, paper distributors
were mostly family-owned and managed enterprises. Many of those formerly
independent companies were rolled up into two competing
mega-distributors, Xpedx (owned by International Paper) and Unisource
(owned by Bain Capital and Georgia-Pacific). Through a series of
maneuvers, Xpedx will be spun off, and then Unisource will be merged
into the new entity. Although margins are paper-thin for these
distribution giants, the combined entity will reportedly be able to
easily handle payments on the debt planned for the new enterprise. Xpedx
is projecting combined revenues for the new company in the $9 billion
to $10 billion range. With reasonable debt levels, and additional
product offerings that may offset the trend of declining demand for
printing papers, such as wide format and digital supplies, it appears
that the new company will have enough buoyancy to stay afloat.
Gould
Paper, another significant player in the US paper distribution market,
with $1 billion in annual sales, also got into the roll-up action in
January and announced that it has acquired Texas paper distributor
Bosworth Papers. Gould in turn is 51% owned by the Japan Pulp &
Paper company, a global paper distributor with $6 billion in annual
revenues.
There also was activity in the other “paper business” –
publishing newspapers. An unnamed “independent investor group” acquired
Mainstreet Communications from PE fund Brookside Group, including a
cluster of local newspaper in the Sierra Nevada area of California. This
follows Brookside’s sale of eight community newspaper titles to the San
Diego Union Tribune, as previously reported in our November 2013 deal
log. In upstate New York, the president and CEO of The Scotsman Press
announced that he was acquiring the company which publishes several
local community newspapers.
A community newspaper was among the
increased number of bankruptcies we found that were filed in January.
The Free Lance-Star Publishing Co. of Fredericksburg, Virginia, filed
Chapter 11. According to articles published in the company’s signature
paper, the company has been struggling to meet the covenants of its debt
obligations which were incurred in the ill-timed investment in 2007 to
build a state-of-the-art printing facility.
http://targetreport.blogspot.co.uk/?utm_source=2014-01+Target+Report&utm_campaign=2014-01+TR&utm_medium=email
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