Quebecor Weathers Market, Leadership Storm

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Sudden departures of key leaders and a sinking advertising market can shake even the mighty Quebecor World, the world's largest commercial print provider.

Troublesome developments at the company last month led several investor analysts to issue punishing reviews of the Montreal-based printer. Last week, analysts continued to urge caution to investors but said clients of the printer, who include many direct mail and catalog marketers, likely won't be affected.

Direct marketing is a significant part of Quebecor's business. Direct mail represented 11 percent of Quebecor's $6.2 billion in revenue for 2002 while the company's magazine/catalog division comprised 27 percent.

The first high-level executive to leave Quebecor in the recent round of departures was chief operating officer Marc Reisch in September 2002. CEO Charles Cavell and chief financial officer Christian Paupe followed in February.

Replacing Reisch were a co-COO team of John Paloian and David Boles. Michel Desbiens and Claude Helie, both former executives of paper company Donahue Inc., joined Quebecor as CEO and chief financial officer, respectively.

But by the end of March, Paloian and Desbiens were gone. Paloian, according to some reports in Canadian newspapers, was the victim of a power struggle won by Boles.

Desbiens said that he left the company to attend to his ailing wife. Though his departure was unexpected, analysts said they do not doubt his reason for leaving and that Desbiens thought he would be unable to devote his full attention to his job.

Jean Neveu is the interim CEO. Neveu is a former Quebecor World CEO who also served as chairman.

"Being CEO of Quebecor World is not some country club job," said William Gibson, financial analyst for Bank of America. "You're constantly in the air flying around the world."

Quebecor's stock price tumbled from nearly $23 a share at the beginning of March to under $15 at month's end. That led some stockholders to hold parent company Quebecor Inc. chief executive and controlling shareholder Pierre Karl Peladeau up for criticism.

In response, company chairman Brian Mulroney, former prime minister of Canada, made a statement April 2 defending Peladeau's contributions to the company. Mulroney denied there was a "P.K. discount," a sarcastic reference by some shareholders implying that Quebecor stock would be worth more if not for Peladeau's supposed micromanaging and confrontational style.

The internal shakeup came during a painful time in the printing industry, analysts said. Though the first quarter is always slow in the industry, "early 2003 trends in the printing sector have been quite weak and have yet to show any real signs of improvement especially amidst a war in Iraq," Adam Shine, a National Bank Financial analyst, wrote in March notes on the company.

Declining ad and marketing dollars are resulting in reduced revenue, and the repeated changes in leadership didn't help Quebecor, analysts said.

"You had a shift there where maybe nobody was keeping their eye on the ball in regards to quarterly numbers," Gibson said.

Analysts said they expect no further high-profile management changes at Quebecor. Shine predicted last week that the company would stay strong over the long term and even recommended investors with a long view take advantage of the recent dip in Quebecor stock prices.

There are concerns Quebecor will reduce its revenue projections for 2003 when it issues its quarterly report April 24, Shine wrote in his March 27 newsletter commentary on Quebecor World.

"That said, has the pullback been overdone?" he wrote. "Debatable, but yes."

For the future, look for Quebecor to merge its direct mail division into its catalog/magazine business unit, Gibson said. The two sectors share enough commonalities that Quebecor could make substantial gains by merging them, and doing so would help address the problem of underused assets.

"What you can do is take the various runs and better utilize the presses," Gibson said.

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