RRD Completes Bowne Merger - Analyst Blog

R.R. Donnelley & Sons Company (RRD) confirmed that it has completed the acquisition of Bowne & Co. Inc. (BNE) as announced on February 23, 2010. 

R.R. Donnelley acquired Bowne & Co. for approximately $487.0 million in cash, or $11.50 per share. The offer price of $487 million represented a 65.0% premium to Bowne's closing price of $6.97 on February 23. The acquisition of Bowne will be accretive to R.R. Donnelley's earnings in the first full year after the close of the transaction.

Upon closing of the acquisition, Bowne will become a wholly owned subsidiary of R.R. Donnelley and will cease trading on the New York Stock Exchange (NYSE). Bowne will be delisted from the NYSE and Synchronoss Technologies Inc. (SNCR) will replace Bowne in the S&P SmallCap 600 index.

On May 12, 2010, Donnelley announced that it received a request for additional information from the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act.

Donnelley said that it had received notification from the Federal Trade Commission that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the proposed acquisition of Bowne has been terminated.

Donnelley is the largest printing company in the U.S., providing various global printing services to a wide variety of businesses worldwide, as well as related services such as logistics and distribution for print customers and mailers.

R.R. Donnelley is actively engaged in making strategic acquisitions to enhance its geographical presence, boost its global outsourcing business and expand product and service offerings. Since 2007, the company has acquired 8 companies.

Bowne has operations in North America, Latin America, Europe and Asia and offers digital one-to-one printing services for healthcare, transactional communications, financial services, marketing communications and other applications.

The acquisition of Bowne would expand and enhance R.R. Donnelley's offering to its clientele, while also creating an opportunity to provide its products to Bowne's clients. We remain positive on the acquisition of Bowne. We believe the company's continued focus on acquisitions will spur its already dominant market position and drive further long-term growth.

Though Donnelly's consistent acquisitions improve its revenue opportunities, it adds to integration risks. Further, the company's ongoing acquisition may continue to stretch its borrowing capacity.

Our Take

R.R. Donnelley continues to expect strong revenue growth for fourth quarter 2010 and fiscal 2011. Management did not provide any earnings guidance. The Zacks Consensus Estimate is currently pegged at 46 cents for the fourth quarter and $1.69 for the full year 2010.

Despite incremental challenges in the printing industry, Donnelley is an important player in the printing industry holding a large market share with strong fundamentals and various competitive advantages due to its large scale of operations. However, the company's highly leveraged balance sheet, increased competition and rising pricing pressure may limit growth in the near term.

We maintain a Neutral rating on a long-term basis (6-12 months) due to continued pricing pressure and lower paper sales, which may hurt long-term profitability. Although R.R. Donnelley expects demand to stabilize and consumer spending to improve over the long term, we expect a slow recovery in results in 2011.

Currently, R.R. Donnelley has a Zacks #2 Rank, which implies a Buy rating on a short-term basis (1-3 months).