Analyst: Donnelley Merger Boosts Customization Capability

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In its $2.8 billion merger with Moore Wallace, Chicago printer R.R. Donnelley gained additional short-run capacity that will give it flexibility to fulfill customer demand for customized communications, analyst Karl Choi of Merrill Lynch said yesterday.

With the advent of one-to-one marketing, customization and digital printing have become buzzwords in the direct mail print industry as mailers seek a higher degree of personalization in mail pieces.

In his written report to investors, Choi commented that the merger with Moore Wallace, Mississauga, Ontario, would bring further short-run capacity to complement Donnelley's longer-run capacity. As an example of how Donnelley could benefit from more short-run capacity, he noted that the company has been performing "just-in-time" manual printing for tech clients in Asia and Europe.

"As more clients demand customized communications, shorter-run capacity offers more flexibility," Choi said in the report.

Donnelley announced its merger with Moore Wallace, recently formed from the merger of Moore Corp. and Wallace Computer Services, on Nov. 9, surprising analysts and creating an $8 billion-a-year printing house with 50,000 employees. Quebecor, the Montreal-based printer that claims to be the world's largest, has $6.5 billion in annual sales and 40,000 employees by comparison.

The merger also will fill a leadership vacancy at Donnelley as Mark A. Angelson, CEO of Moore Wallace, is to take over as Donnelley CEO for the retiring William L. Davis. The acquisition will clarify uncertainties over Donnelley's CEO search, Choi said.

However, he cautioned that such a large merger entailed risks, especially given that Moore Wallace is still digesting the effects of its own merger in May. In June, Moore Wallace combined the two direct marketing divisions left over from its merger.

The Donnelley-Moore Wallace merger is expected to be complete in the first quarter of 2004. The headquarters of the merged company will be in Chicago.

The merger will make Donnelley a full-service print provider catering to all of its customers' needs, said Katherine Divita, Donnelley spokeswoman. Moore Wallace, which mainly is a provider of forms and labels as well as outsourced communications and direct mail, will round out Donnelley's repertoire of print services and provide "one-stop shopping" for customers, she said.

Moore Wallace's growing outsourced communications services business, including customized variably-imaged customer communications, was a main component of the deal, and in some cases the two share clients without overlap, Choi said. For example, Donnelley prints Verizon directories, and Moore Wallace prints Verizon customer statements.

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