A lot of strange things have happened in the printing industry in recent years:

Heidelberg and Manroland, the two giants of the German printing press manufacturing industry, joined forces for the first time in the market to create a historic great moment. Before that, Heidelberg had been the market leader for more than half a century. And Manroland has been considered the world’s second largest printing press manufacturer for more than 160 years.

In the three years of turmoil in the printing market, the world’s three largest printing press manufacturers – Heidelberg, Manroland and KBA, which have sold two-thirds of the world’s sheet-fed printing presses – have made major adjustments to their production scale, labor agreements, sales force and product lines.

An investment company known for corporate resale began to provide consulting services to two of the three printing press giants.

Then, one of the three companies publicly stated that it would acquire one of the other two giants. All kinds of rumors suddenly filled the entire printing industry. One company even claimed that one of the three would be squeezed out of the North American market in a few years, but this statement was strongly opposed by its competitors.

If markets can really reflect and predict business events, then these changes, which seem very unusual in the history of Western printing industry – all three companies are headquartered in the same place in Germany, where Ottmar Mergenthaler, the inventor of the Linotype machine, was born, where the steam printing press was born, and where Johann Gutenberg applied movable type to the printing press – also indicate that more corporate changes will happen.

At least so far, we know that the most important companies in the printing industry have increased their investments in greening and environmental protection.

It is mainly a question of “when” rather than “what”.

Industry consultant Vincent Naselli pointed out: “Now is the best time to discuss market changes. The market has been changing and will continue to change. Although the ownership of printing press manufacturers has not changed in the past few years, their management philosophy has changed dramatically. But this is not a big deal.”

“What is a big deal?” Naselli added: “The so-called big deal is to find the best time to make adjustments. This is usually when people find that the market has become unpredictable, or when they are waiting for better investment opportunities.”

Although printing press manufacturers now have more funds than before to invest in other areas (such as transportation and power generation), printing investors seem to be more interested in the “non-offset” aspects of the company. Charles Corr of Graphic Arts Outlook pointed out: “Our cooperation with financial institutions shows that digital printing represents the future development trend.”

Offset press manufacturers also insist that the change in investment direction is a normal adjustment for enterprises.

Everything is rebounding – Heidelberg and Manroland are now far more profitable than KBA – in the two main markets of North America and Europe, which were in the period 2000-2003. More importantly, the ownership of Manroland has suddenly changed. “It was just a coincidence, actually,” says Hans-Dieter Siegfried of Heidelberg’s corporate communications department.
… In 2004, despite the recovery of the printing industry, Manroland’s sheetfed division still lost 41 million euros (52 million U.S. dollars) on sales of only 910 million euros (1.16 billion U.S. dollars). (The web-fed division made a profit of 44 million euros that year.)

“Even in such trouble, it is difficult for us to jump out of the printing circle,” said James Stettler of the investment banking department of Dresden Bank AG. In order to gain room for survival, MAN Group and Manroland Chairman Gerd Finkbeiner launched a cost-cutting plan called “action package” in 2003. The following year, they launched a “RAMOS II” plan, which reduced the operating costs of the sheetfed division by 50 million euros (64 million euros). In November 2004, they signed a labor agreement to reduce the wage pressure of Manroland and promised not to lay off any employees of the Offenbach plant before 2006. To quell rumors, they also decided not to dissolve the increasingly poor sheetfed division.

Then MAN CEO Rudolf Rupprecht resigned. “They brought in a new CEO (Samuelsson) from Scania (a carmaker like MAN), who said he would give the sheetfed division a year to turn around, and if it didn’t, he would close the plant,” Stettle said.

It’s more than a game for Allianz

Although cost-cutting programs helped MAN’s sheetfed divisions become profitable, their revenues fell in 2005. Even in November, the company was discussing whether to split and reorganize all of MAN’s divisions. The plan finally came to fruition in March 2006: MAN became an independent company, with MAN holding 35% and Allianz Capital Partners owning 65%. The two companies plan to list MAN within three to five years.

Heidelberg’s changes were less dramatic, at least for a while. RWE is a large German power line communications company that has been owned by Heidelberg since the 1940s. In 1997, Heidelberg decided to reduce its business scope. They sold 22% of RWE between 1997 and 2001, and sold the remaining 50.02% in 2004.

Then another major shareholder also began to withdraw its investment. Last September, Commerzbank AG sold 10% of Heidelberg shares. In November, Heidelberg began to buy back shares, which is a common practice for companies to reduce the number of shares on the market. In addition, they began to pay dividends to long-term shareholders and increase the value of remaining shares. Munich RE, an insurance company, also owns 6.1% of Heidelberg. But in May this year, the company reduced its Heidelberg stake to 4.7%.

The largest share of Heidelberg (12%) is held by Allianz AG, the parent company of Allianz Capital Partners, which also owns 65% of Manroland.

Since Allianz AG suddenly proposed a merger between the two major printing press manufacturers and the uncertain prospects of the offset printing market, rumors have been rife. It is said that Allianz will soon merge Heidelberg and Manroland, and the unified ownership will help the company control the overall price of printing supplies.
… The new market created by the merger of Heidelberg and Manroland may become a top priority for German antitrust authorities.

Allianz Capital CEO Thomas Putter quickly responded to the merger rumors, saying he hopes Manroland can play a decisive role in the upcoming industrial merger.

Retreat to advance. Both Allianz (not Allianz Capital Partners nor its parent company Allianz AG, but a multinational insurance and financial services company) and Manroland’s Rogivue can give the following answer when facing people’s questions: “We have no such plans.”

Heidelberg’s Siegfried said they don’t want to talk about any issues about competitors at this time.

He believes that German antitrust regulators will not approve the Heidelberg-Manroland merger application, saying: “If you are a large company, everyone in the German Law Trust Committee will say to you: ‘Sorry sir, I can’t do anything.'”

Manroland’s Rogivue explained that while American regulators can rule on the impact of corporate mergers on consumers and markets under antitrust laws, German regulators prefer to use “social politics” to solve such issues and are more willing to protect workers’ jobs. They will not take the risk of Heidelberg and Manroland merging and giving them ideal production capacity – which is usually the original intention of corporate mergers.

Who needs who?

Stettler of Dresden Bank AG’s investment banking department said: “I don’t think Heidelberg really needs Manroland.” According to Stettler, Heidelberg was still considering whether to buy Manroland’s ultra-large format presses and re-brand them a year ago. But in May this year, the company suddenly decided to invest 35 million euros to build its own ultra-large format printing press production base, and plans to officially start production in 2008 (KBA also pointed out in its annual report that the market demand for ultra-large format printing presses is growing).

In addition, the merger of Heidelberg and Manroland will occupy 55% of the sheet-fed printing press market, which is a big challenge for German antitrust regulators. Moreover, if they agree to the merger of the two companies without losing their jobs, the merger will bring more labor costs to Heidelberg and Manroland’s factories in Germany. Heidelberg is moving in another direction, it intends to reduce labor costs to the same level as China.