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RR Donnelley & Sons, North America’s largest printer, is proposing lessening the percentage of shareholders needed to approve a sale of itself, according to a regulatory filing. Donnelley, the subject of what sources have said was intense take-private interest last Summer, is likely to see renewed interest if the change takes effect, sources said today.
Donnelly’s board of directors unanimously recommends approval of the change in shareholder approval requirements for a sale or merger, and shareholders will be asked to vote on it at Donnelley’s annual meeting late next month, according to the filing. Donnelley is not recommending the change “in response to any pending, planned, or contemplated transaction,” according to the filing.
Two sources familiar with the situation said that there currently is no transaction in the works. When asked what might be a likely point at which Donnelley could be sold, the sources said that later this year, or the beginning of next, as the benefits from Donnelley’s recent purchase of Banta are more reflected in its financials, could be such a time. The sources stressed that no such sale decision has been made, though they said Donnelley could entertain sales discussions earlier, that Donnelley in the company’s view does not need to sell, and if it did not, would likely look at further acquisitions. The sources said that a sales price for Donnelley of USD 60 per share, would be an excellent price, but not necessarily one they would expect to get. They said that a purchase price of eight times EBITDA would be fair, which within six to 12 months, would put a buyout price in the USD 52 to USD 55 per share range, the sources said. Donnelley’s shares closed today at USD 42.42 per share, near its 52-week high of USD 42.49.
The first source familiar with the situation said that within six to twelve months, Donnelley’s EBITDA should be approximately USD 1.8bn, and should thus have enough cash flow to support operations and debt related to a buyout. Donnelley declined comment on the proposed shareholder approval change or on any buyout-related issues.
Two sources involved in the purchase side of discussions last Summer, when contacted, said they were unaware of the proposed change regarding shareholder approval of a sale, and when informed of the possibility of the change said they would begin looking anew at Donnelley as a potential purchase. “We will run the models again, as there have been changes, to see how the numbers work,” said the source, adding that he saw the proposed change as “not a sign that Donnelly is necessarily for sale now, but that its preparing ahead that it could listen to discussions soon and wants to be prepared.”
Donnelley, based in Chicago, is incorporated under the laws of the State of Delaware, whose state’s law only requires a majority shareholder vote to approve a sale or merger in most cases. Donnelley’s Certificate of Incorporation requires the two-thirds supermajority, and a two-thirds vote of Donnelley’s shareholders is required to lessen the requirement to a simple majority.
When Donnelley was in take-private discussions last Summer, at least one major shareholder balked at the proposed buyout price range. Donnelley said in its filing: “The requirement of a supermajority vote can limit the ability of stockholders to effect change by essentially providing a veto to a large minority stockholder or group of stockholders.” The two sources said the proposed change was not aimed at any particular shareholder, noting that Donnelley’s share price is now at or above the approximate take-private buyout price range that sources said was being contemplated by potential buyers last Summer.
Both sources said that an eventual buyer would more than likely come from private equity, given the scope and breadth of Donnelley’s holdings. “It is the 800-pound gorilla, so it is hard to envision who a strategic buyer might be,” said the first source familiar with the situation. At its annual meeting, Donnelley shareholders will also be asked to vote on a change in the terms of directors, in effect, making all board terms of one year’s duration. Donnelley completed its USD 1.3bn purchase of printer and supply chain manager, Banta, in January of this year. Last month, the NYSE-listed Donnelley named Thomas J. Quinlan III chief executive officer, to replace retiring Mark A. Angelson.
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