When ‘druck’ comes to shove: Pressure for a Heidelberg-manroland merger

The speculation emerged last Friday (July 24), significantly the day following Heidelberg’s annual meeting in Mannheim, Germany: First the ‘Platow’ stockmarket newsletter and then German financial newspaper ‘Handelsblatt’ reported “intense negotiations” into a merger between the sheetfed press maker and manroland. And the word from inside is that it may happen “quicker than we expect”, writes Peter Coleman. The driver is reported to be financial institution Allianz, which holds a reported 12 per cent of Heidelberg and is manroland’s majority shareholder at 65 per cent. Reports suggest that the idea of a merger had already been explored at Heidelberg by then chief executive Hartmut Mehdorn … but under different circumstances. The deepening gloom of his successor, Bernhard Schreier explains this. In 34 years working for Heidelberg, he says, this is not the first crisis he has experienced, nor the first in his role as chief executive: “It is, however, without doubt one of the worst – and probably the worst of all.” He’s upbeat – of course – in suggesting that when the economy picks up, Heidelberg will be ideally placed to move into growth mode … but there’s also the acknowledgement that this will not happen any time soon. While the low point has been reached in some sectors, he says the general view is that “economic risks still outweigh the opportunities, and it is much more likely that we will need to wait until 2010 for a significant turnaround.” It’s not a scenario Heidelberg’s shareholders reslished, and they are reported to have shown their displeasure. With increased financing costs – including guarantees in the German government’s second economic stimulus package – the company expects “a substantial loss” for the next financial year. Incoming orders “appear to have stabilised” at the low level of the previous two quarters, and more figures for the first quarter of 2009/2010 are expected on August 11. manroland has also reported sales results devastated by the current economic situation including a fall in earnings (EBIT) from 125 million to 52 million Euros, but managed a return. Big questions arise: Would manroland (or its shareholder) benefit from a merger? Can Heidelberg recover from the present situation as it did from crises between 2004-2008, or is this the time for market reorganisation to reflect the changing circumstances of the printing industry? The package of measures – ongoing cost-cutting; building services and consumables to reduce its dependency on sales (and its vulnerability to economic cycles); and pushing harder into emerging markets such as China and India – are the same steps being taken by most of the industry’s majors. The difference is the interest of the common shareholder, Allianz in both companies, and the changes which have taken place in their structure since Mehdorn might have contemplated, not a merger, but an acquisition. Notably, manroland is stronger through its spin-off and the backing of the financial group, and secondly, Heidelberg has moved from its involvement in all areas of print. ‘Complete solutions’ means something different to what it did in Mehdorn’s day, and particularly, it has moved from a commitment to dominating the newspaper market to being a shareholder in web press maker Goss International. Times change, and that 15 per cent of the Goss share register looks more like a financial investment than a strategic holding, now that Shanghai Electric has moved to be the US company’s second-biggest shareholder. For these reasons too, it is now more likely that a merger between Heidelberg and manroland might gain regulatory approval. And as I’m told, it may happen sooner than we all think.