Filed by Moore Corporation Limited pursuant
to Rule 425 under the Securities Act of 1933
Subject Company: Wallace Computer Services, Inc.
Commission File No: 001-06528
MODERATOR: MARK ANGELSON
JANUARY 17, 2003
9:00 AM CT
Operator: Good morning my name is (Mitch) and I will be your
conference facilitator today. At this time I would like to
welcome everyone to the Moore Wallace Conference Call.
All lines have been placed on mute to prevent any
background noise. After the speakers' remarks there will
be a question and answer period.
If you would like to ask a question during this meeting,
simply press star then 1 on your telephone keypad and
questions will be taken in the order they are received. If
you would like to withdraw your question, press star then
2. Thank you.
The host for today's call is Mr. Mark Angelson, the
company's Chief Executive Officer. Mr. Angelson you may
begin your conference.
Mark Angelson: Good morning ladies and gentlemen, my name is Mark
Angelson and I am Chief Executive Officer of Moore and
Chief Executive Officer Elect of the combined entity.
Before we precede any further we're going to have a brief
Safe Harbor remark.
Man: Certain statements including discussions of the combined
company's expectations for the future made in today's
conference call with constitute forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995.
Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause
actual results to differ materially from the future
results expressed or implied by those statements. We refer
you to both companies SEC filings for the factors that may
cause those statements to so differ.
Mark Angelson: Thank you for joining us on this historic day for our
companies and for our industry. We announced this morning
that we have signed a definitive merger agreement to
combine Moore and Wallace and to create a world leader of
print management solutions. The combined company will be
called Moore Wallace and we are very, very pleased about
that.
Also joining me today is my friend and colleague, David
Jones, the Chairman and Chief Executive Officer of Wallace
and various members of both management teams including Tom
Oliva, who is President and Chief Operating Officer, (Tom)
Quinlan, who is Executive Vice President in our office of
the Chief Executive, Mark Hiltwein, who is Chief Financial
Officer from the Moore side.
And from David's side, Vicki Avril, who is Chief Financial
Officer, (Mike) Duffield, who is our President, Lori
Roberts, who is responsible for Human Resources for
Wallace, and Jim Benak, General Counsel.
I hope that you have had the opportunity to review the
press release we issued earlier this morning and I would
like to take a moment to summarize the terms of the
transaction.
First the total value of the deal is an aggregate
consideration of approximately - and all numbers in this
conversation will be U.S. dollars - U.S. $1.3 billion at
yesterday's closing price of $10.65; consisting of
approximately $606 million in cash, approximately $470
million in Moore common stock and the assumption of
approximately $210 million in debt before premiums.
To complete the transaction we will issue approximately
44.2 million shares of common stock to Wallace
shareholders following the merger. We'll own approximately
28% of the combined company. We expect that after
customary regulatory approvals and approval by the Wallace
shareholders that this transaction will be finalized
within 90 to 120 days or in the mid to late spring.
Briefly I'd like to point out that Moore Wallace will have
an (answer) price value of approximately $3 billion, that
we will generate combined sales of approximately $3.6
billion and combined EBITDA in excess of $400 million in
2003.
We will also provide a diversified manufacturing platform
from which to grow our business further. We will have an
unparalleled ability to provide innovative print and
digital solutions conveniently and cost effectively for
our customers.
We employ today more than 18,800 people worldwide and we
have operations in more than 20 countries. The combined
company will be financially strong.
We expect that the leverage ratio on the closing date,
that is the leverage of the ratio of debt to EBITDA, will
be about 2.7, 2.7 1/2 times maybe a little better. And the
transaction will be substantially accretive to more
earnings.
You will see solid cash flow generation, free cash flow,
including in the first year of operations. And obviously
you will have seen from the press release that we have
committed support from major financial institutions.
Moore Wallace is uniquely positioned to generate
significant combination benefits. We have initially
identified at least $50 million in annual cost savings
from synergies principally derived from asset
rationalization eliminating redundant overhead costs and
duplicate IT expenditures, procurement savings and the
opportunity to leverage a more comprehensive product
offering to a broader customer base.
As many of you know Moore management has an exceptional
record of creating value for our shareholders. Since 2000
Moore shares have grown from $2.62 to yesterday's $10.65,
an increase well larger than 300%. We had U.S. $100
million in cost reductions achieved in 2001 alone and
margin improvements every quarter since the first quarter
of 2001.
Clearly this combination will benefit all shareholders. We
believe that Wallace shareholders are receiving a full and
fair value for their shares. Wallace shareholders are
receiving the equivalent at yesterday's closing price of
$25.58 per share, more than 20% premium over yesterday's
closing price of $21.13.
On average each share of Wallace will be converted into
the right to receive $14.40 in cash and 1.05 shares of
Moore common stock. However each
shareholder may elect all cash or all shares subject to
pro ration. As I mentioned earlier Wallace shareholders
will ultimately control 28% of the combined company.
And before I pass the call on to David Jones for his
remarks I'd just like to say that both management teams
are very enthusiastic about the future opportunities that
Moore Wallace presents. We're talking to you this morning
from Lyle, Illinois where we've already met with many of
the Wallace employees who share our enthusiasm.
David Jones is a highly intelligent man, steeped in
professionalism and I look forward to working closely with
him on this transaction and this transition and to finding
a way to continue our professional association with David
going forward. And with that I give you David Jones.
David Jones: Well thank you Mark for your kind comments. This
combination is truly a win-win for everyone. It's great
for our customers. It's great for our shareholders and
it's great for both of our businesses.
This is classic industry consolidation. It does bring
clear economies of scale to the operations of our business
in areas ranging from purchasing on to manufacturing and
on to information technology as well.
I mean it broadens the customer base for both of our
companies. It broadens our product offering and it creates
a whole that is clearly greater than the sum of the parts.
This is clearly a case where one plus one equals three.
For those that don't know Wallace, we bring a whole lot to
this party. We have a large base of blue chip customers.
We have complimentary products in
commercial print and targeted communications. We have
solid manufacturing. We have excellent kitting,
distribution, print-on-demand capabilities in our business
solution centers around the country.
We have outstanding customer interface systems in our
w.i.n. system, our @w.i.n. system and brand new
(@w.i.n.XS) system. We have a large, high caliber sales
force as well.
When you combine these strengths with those of Moore's and
their great customer base, their complimentary products
and their strong manufacturing base and a similar talented
sales force, this makes a very, very impressive company.
When I look at these businesses combined I'd just love to
be one of our customers.
Both companies have great capabilities that is true, but
they also are coming together at a time when they both
have momentum. Moore has done a great job getting their
business back on track and has produced very consistent
results. And we also feel good about how we've come
through the last several years and are continually
improving.
But we're both at the point where we can improve and grow
faster together than we can apart and this deal makes that
potential a reality. This deal also delivers real value to
our shareholders. First it's the value of $25.58 per
share, that's a 21% premium over yesterday's close and a
30% premium over the 52 week average.
Second is the chance for shareholders to elect either cash
or stock and likely the stock portion will be tax
deferred. Third is the chance for our shareholders to not
only take a portion in cash but also have an opportunity
to participate in
the future growth in Moore Wallace through continued
ownership and the total ownership for our shareholders
will be 28% of the new company.
Now looking ahead for the next few months, our top
priorities here at Wallace will be to continue the good
work already underway. To really focus on delivering our
planned results and to getting this deal completed with
the minimum amount of disruption.
And to that end I will be working with Mark to plan the
integration of these two terrific businesses and make sure
that everything is in place so that when the deal is
closed the integration happens rapidly and seamlessly.
And I genuinely look forward to working with Mark and both
of our respective teams to make this merger a resounding
success. With that operator we can open the lines for
questions.
Operator: Again ladies and gentlemen I would like to remind everyone
in order to ask a question please press star then 1 on
your telephone keypad. We will pause for just a moment to
compile the Q&A roster. Your first question comes from
(Craig Huber) with Morgan Stanley.
(Craig Huber): Yes, good morning, thank you. Could we just drill down a
little bit further on?
Mark Angelson: (Craig) we can't hear you.
(Craig Huber): Can you hear me now?
Mark Angelson: A little better, a little better.
(Craig Huber): Well on this $50 million of cost savings to me sounds very
well, I mean, you're speaking of $3.6 billion combined
company. Could you just drill down, is this something that
you could possibly double the size of the $50 million to
$100 million a year?
Mark Angelson: (Craig) you know what we tend not to mention numbers on
conference calls like this that we're not sure we can
make. From where we're sitting right now we see clearly
$50 million. We're going to study this carefully over the
next 90 to 120 days and see what else is around. But
that's the number we're going with for this morning.
(Craig Huber): My other question just having followed more corporate
(unintelligible), the goal has got to be to get to a 10%
EBIT off operating profit margin. How much do you think
this accelerates that path to that?
Mark Angelson: This will be very helpful to that and will at least keep
us on schedule if not make life a little easier for us.
(Craig Huber): Okay. Mark can you just also just briefly can you just
given your background in the printing industry just to
refresh our memories how many acquisitions you've been
affiliated with over the years?
Mark Angelson: Sure. One of the best things is that about this
combination is that this is what we do. We have with us
this morning just on the Moore side alone a team that is
largely comprised of the old World Color press team taken
together with a couple of us who were at Big Flower Press.
Between the 32 acquisitions that we did at Big Flower in
the printing industry, the acquisitions that were done at
World Color and the three including Moore that have been
done in the combined entity; on our side alone we have the
experience of integrating 60 acquisitions in the printing
business in the last ten years.
We know how to do this. We've just done it at Moore. We
are very excited about the opportunity to do this. We've
got the team in place and we have some very talented
executives at Wallace as well to help smooth this thing
through. But we're not worried about that at all and we
actually thank you for that question (Craig).
(Craig Huber): Thank you very much. Congratulations.
Mark Angelson: Thank you.
Operator: Your next question comes from (Charlie Strausser) with CJS
Securities.
Mark Angelson: Good morning (Charlie).
(Charlie Strausser): Good morning. Congratulations on putting this deal
together.
Mark Angelson: Thank you.
(Charlie Strausser): A couple of questions overall to you, first of all let's
talk about a little bit about free cash flow kind of post
deal what you think that might look like if you can
quantify that and what are kind of your first priorities
for the use of that free cash flow?
Mark Angelson: Mark Hiltwein, Chief Financial Officer, please take the
first part of that and I'll take the second part.
Mark Hiltwein: (Charlie), Mark. We believe that once we have a running
rate of $50 million which should be our first full year of
operations that we can achieve at least $200 million of
free cash flow.
(Charlie Strausser): And that's after the first full year, the first 12 months
after closing you say?
Mark Hiltwein: That's correct.
(Charlie Strausser): Okay and Mark if you care to elaborate, you know, what are
your new priorities now? Are you going to continue to look
at acquisitions? What are those now?
Mark Angelson: You know we're going to tend to our knitting. The very
first thing that we're going to do is live seven days a
week, 24 hours a day integrating these two companies
properly. So don't expect us to announce another
combination tomorrow.
But we will continue our pledge, we have pledged to our
lenders that we're going to be very aggressive in using
our free cash flow to pay down our debt and we're going to
do that. And once we make a substantial dent in that which
we think we can do very quickly, we are going to return to
our commitment to using our free cash flow in ways that
will be purely accretive to our shareholders.
There are other acquisitions out there in due course that
we expect to do. We are particularly excited about
enhancing our relationship with our customers through
continuing our program of outsourcing their facilities and
providing further outsourcing arrangements with them.
And as I've said in the past in the event that we find
ourselves with free cash flow and for some reason the
acquisition spigot in turned off we will be aggressive
about buying back our shares.
(Charlie Strausser): Sounds great. I think (Arnie's) on with me too and he has
another questions as well.
(Arnie): Good morning, (Arnie) here. Just two mechanical questions,
one I want to make sure there is no (collar) on the deal,
is that correct?
Mark Angelson: That is correct there is no (collar) on the deal. It's
plain vanilla; (1440) and 1.05 shares.
(Arnie): And again an obvious arbitrage related question, we view
there's virtually zero chance of any anti-trust issues
given the precedence. Would you care to comment on your
view of the anti-trust potential issues given the
precedence?
Mark Angelson: One should never say never, but the only good thing that
came out of the unfortunate hostile exchange between these
two companies back in 1995 is that there is a final
judgment of the Delaware Court in a case styled something
like Wallace versus Moore which says that there are no
anti-trust implications to the transaction as it was then.
There's also the industry standard case that arose out of
the combination of (RRR Donnelly) and (Meredith Berta). We
have been advised that we are on very safe ground here.
(Charlie Strausser): Great, it's (Charlie) again. Mark Hiltwein or Vicki maybe
this is more appropriate for you. Just a couple of quick
metrics if you could, revenue per employee at Wallace? And
maybe if you could quantify the differences in margins
between the two companies as well?
David Jones: I think we're going to have to do some quick calculations
on that one.
Mark Hiltwein Revenue per employee is about $178,000. And what was your
second question (Charlie)?
(Charlie Strausser): Just if you have, you know the rough differences in
margins between the two companies?
Mark Hiltwein: You know currently our EBITDA margins are pretty
comparable. They're probably in the area of 10 to 12 or 10
to 11%, so they're pretty close stand alone.
(Charlie Strausser): Great. And just if you could just elaborate just briefly
on cross selling opportunities and kind of the low hanging
fruit on that and revenue opportunities where you see, you
know, the easiest things for your sales forces combined to
kind of go after?
Mark Angelson: Boy am I glad you asked that question. We have an
extraordinary opportunity here. Our total exposure in the
combined enterprise to the modestly declining
printed forms business is now down to 20%. Our commercial
print platform will be larger than that.
And we will now have instead of the constraints that Moore
has been under in the past of basically just having a
presence in commercial print in the Midwest, we will be
coast to coast with this wonderful commercial printing
platform that Wallace brings to the table.
The cross selling opportunities are, gosh, without trying
to sound too excited a potential bonanza for us. Our sales
force, the combined sales force, will now be primed to
sell, cross sell, our blue chip forms and labels customers
onto that commercial printing platform.
We will no longer be in a position of, you know, trying to
explain to a customer in California just how it is that we
can timely print in North Carolina what they need
delivered the next day in California. We're very excited
about the cross selling opportunity. And I think that
David wanted to make some remarks about that as well.
David Jones: Yeah, I'll make a couple of comments. One of the faster
growing parts of our business has been the sales of
commercial print to the nationwide customers that our
traditional forms and labels people have had the
relationship with for a long time. Now that you add the
Moore sales force into that that part of the business will
grow even faster.
Also the Wallace sales force is just excited to get hold
of the outsourcing solutions opportunities that Moore
brings the party that has not been part of our repertoire
of products. So there are a numerous number of cross
selling opportunities here.
(Charlie Strausser): Great. And then just a quick number, how many sales people
total combined after the deal closes?
Mark Angelson: Tom Oliva, what do we have?
David Jones: Probably about 1500.
Tom Oliva: It's about 1500 total sales people across North America.
(Charlie Strausser): Great, terrific. Congratulations again, I'll turn it over
to someone else for questions.
Mark Angelson: Thank you.
Operator: Your next question comes from (Tim Ewington) with Goldman
Sachs.
Mark Angelson: Good morning (Tim).
(Tim Ewington): Good morning. Just a couple of quick questions here, could
you kind of give us any indications on the interest rate
on the bridge financing?
Mark Hiltwein: Yeah, I think if you use 8% (Tim) that's probably a pretty
good number.
(Tim Ewington): Okay. And just on the synergies, could you just kind of on
the first $50 million?
Mark Angelson: Wait, when you're talking on the bridge, Mark was just
speaking of a blended rate. Are you asking us about a
bridge to bonds or was your question what's the general
rate going to be?
(Tim Ewington): What's the, you know, obviously if we boost up the debt
rate, you know, what would be for the amount of debt what
would be a reasonable rate to use in our models?
Mark Angelson: Mark answered your question correctly.
(Tim Ewington): Okay, excellent. And just from the synergies perspective
as we take a look at it, you know, you've got your cost of
sales and then your SG&A, you know, with that $50 million
is the bulk of it going to come out at the gross margin
level or would it be much at the SG&A level?
Mark Hiltwein: I think it's going to be both (Tim). I mean unless, until
we get into the details I should say, you know, it's going
to be difficult for me to answer that question.
But you know there's going to be benefits that we achieve
through better utilization through better purchasing and
procurement techniques so obviously that's going to hit
the cost of goods sold line. So I think overall there's
going to be a split between the two. I think I'd be
talking out of school if I told you today what those exact
breakouts would be.
(Tim Ewington): Okay. And then with respect, I mean, do you see any
headcount reductions, any ballpark at the current time?
Mark Angelson: Look obviously, you know, there are some people who may
lose their jobs over this. But we are nowhere near a
number. What we're going to do is we're going to work
closely with our friends on the Wallace management team
over the next 90 to 120 days to figure that out. And you
know we will have obviously further announcements to make
about that closer to the closing date.
I will add however that we really do see this as an
opportunity to take the best from both companies and we're
very much looking forward to having a substantial number
of our friends at Wallace with us at all levels.
(Tim Ewington): Okay. And just on the synergies, where do you see the most
benefit? Is it, it seems like you're fairly similar on the
margin basis at the forms and labels level, but it looks
like there's still some work to be done on the commercial
side, you know, is that kind of the focus to start with or
is it across all operations?
Mark Angelson: Across all operations. This is the most compelling
corporate combination that I have ever seen in my life. It
is just a wonderful opportunity across a broad spectrum of
areas.
(Tim Ewington): What is Tom Oliva's role going to be in the new company?
Mark Angelson: Tom Oliva is going to be President and Chief Operating
Officer.
(Tim Ewington): Okay. And who's going to be the CFO?
Mark Angelson: We haven't made any final determinations beyond those two
positions but I can tell you that I have great faith in
Mark Hiltwein, who's done a fabulous
job for us. We have great respect for Vicki as well and we
will endeavor to find an appropriate professional
relationship going forward with all of the senior
managers.
(Tim Ewington): Okay. Just two final questions before I turn it off, over
to somebody else. First of all on kind of your views on
organic revenue growth for the two entities and the second
one is what will happen to Wallace's dividends once the
companies are combined?
Mark Angelson: Mark why don't you take the first half of that and I'll
take the second.
Mark Hiltwein: Yeah, (Tim) again on organic growth, I mean, I think we'll
look to model this thing out at anywhere from 2 to 2 1/2%
of organic growth. And you know that's probably a bit
conservative but I think that's what we feel comfortable
with right now.
(Tim Ewington): Okay.
Mark Angelson: Yeah, the dividend is obviously a very important question.
You know it should be clear to everybody that Moore has
not paid a dividend in recent years because of our
commitment to the accretive use of our cash flow on the
one hand.
On the other hand we are very much aware that Wallace's
shareholders have come to rely on that dividend and in
fact others in our space do pay a dividend. This is a
decision that is going to be made by the combined Board.
We're going to be very thoughtful about this. It will be a
businesslike decision. We will have three Directors from
Wallace participating in it.
The President of the United States has made life more
interesting for all of us on this subject as well with his
proposal for a change in the corporation taxation regime.
It's something that we will look at very carefully. We'll
need to see what finally happens with President Bush's
plan. But we will be back to you on that in due course.
(Tim Ewington): Great, thanks very much.
Operator: Your next question comes from (David Jeffrey) with
Paradigm Capital.
(David Jeffrey): Good morning guys.
Mark Angelson: Good morning (David).
(David Jeffrey): Tell me the timing of the synergies, you indicated you
expect it to be accretive in year one. Do you expect it to
be accretive right out of the gate in the first quarter?
Mark Hiltwein: (David) the $50 million that we talked about as far as
synergies is we're looking about a 9 to 12 month time
period as far as getting the $50 million out of the
business.
Mark Angelson: Yeah, we've talked about it on an annualized basis and you
know year one starts after the closing and we don't have a
precise date for that yet.
(David Jeffrey): Okay, but you do expect the acquisition to be accretive in
the first year?
Mark Angelson: Absolutely, yes.
(David Jeffrey): Okay. And the second thing is have you contemplated any
write-offs that might be associated with the combination?
And a follow-up to you Mark how that might impact what we
should assume for our tax ratios this year and in '04?
Mark Angelson: Remember you've got two Marks here but I think you're
talking to Mark Hiltwein.
(David Jeffrey): Mark Hiltwein, yes.
Mark Hiltwein: (David), you know, we believe that there will be charges
taken. The magnitude I wouldn't like to put a number on
that today. As far as a tax rate for the combined entities
I think we'd feel comfortable with an effective tax rate
of about 31%.
(David Jeffrey): That's great. Thank you very much and congratulations on
what looks like a pretty good business combination.
Mark Angelson: Thank you very much (David).
Operator: Your next question comes from (Robert Delmino) with the
New (Brueger Berman).
(Robert Delmino): Hi.
Mark Angelson: Hi (Robert).
(Robert Delmino): The $200 million in free cash flow that you're sighting,
is that, can you elaborate on that a little bit? Is that
after working capital requirements? Is that before any
dividend decisions?
Mark Angelson: The answers are yes and yes.
(Robert Delmino): Okay. And the cap ex, I'm obviously not as familiar with
Moore, but the cap ex at Moore looks very low relative to
your company's size and relative to what Wallace is
spending. Is that sustainable at that level? I'm really
asking whether this free cash flow is sustainable.
Mark Hiltwein: We typically model our cap ex at just about 3% of revenue
which I believe Wallace does also. And if you take that
under combined combination it's somewhere in the area of
$105 million. We have spent $45 million in 2001 and
through nine months we've spent $21 million.
You know putting the combined entities together will give
us some form of capital avoidance in the fact that there
is some excess capacity that we will be able to take
advantage of.
(Robert Delmino): So are you assuming then 3% of revenues are spent to get
that $200 million or are you taking into account some of
the capital savings?
Mark Hiltwein: No, the $200 million has 3% baked into it.
Mark Angelson: You can also assume in response to the second part of your
question that the number is sustainable going forward. We
do not expect a lower number for free cash flow in the out
years.
(Robert Delmino): When you said yes to the dividend that's out of the
equation?
Mark Angelson: That is correct.
(Robert Delmino): Okay. And the $50 million of synergy that you see, this is
something that you have sort of, you know, can you just
shed a little light on that number? I realize you don't
want to talk too much about it because a lot of people
need to be informed and different things.
But is that, I mean, just how achievable is that and to
the extent that you can exceed that without getting too
deep into it where would be the areas, in what areas would
it come from logically?
Mark Angelson: Well look, when we went into Moore, you know, we said that
we would find $58 million in synergies out of the box and
I think we managed to find $58 million in synergies and
cost savings if you will in Moore. I don't want to get to
specific here. We haven't had an opportunity carefully to
study this thing.
You know we will, I undertake to you that we will get $50
million in synergies out in the first 12 months on an
annualized basis and you know to the extent that we can
make that number higher we will and as soon as we know
what it is we will report it to you.
(Robert Delmino): Okay. And just two last follow on questions, any sense as
to when you will have a better feel for the synergies are
we talking in two or three months kind of thing?
Mark Angelson: You will know when we will know. We're not planning on
being shy about this. We are very excited about this
combination and the opportunities this presents for us.
(Robert Delmino): And could you on the in terms of the non-recurring
charges, I realize you don't want to go into a lot of
depth here, but can you sort of bracket what you think
might be the cash side of that? I mean is $20 million, $50
million, $100 million, if you look at leases and severance
and all that stuff? Did I lose you?
Mark Angelson: No, we're still here, but we thought you wanted a
thoughtful answer.
(Robert Delmino): Yeah, take your time.
Mark Hiltwein: Yeah, I mean, I think it's probably, you know, probably
close to $75 million to $100 million when you bake
everything into it.
(Robert Delmino): That's the cash, the potential cash yet?
Mark Hiltwein: That's correct.
(Robert Delmino): Okay, I'll step aside. Thanks.
Mark Angelson: Thanks (Bob).
Operator: Your next question comes from (Ray Lewis) with
(Schroeder's).
(Ray Lewis): Thank you. And let me add my congratulations to the
chorus. Most of my questions have been answered; I've just
got two left. Is there any break-up fee in the merger
agreement?
Mark Angelson: Yes there is and it is just well within the range of
exactly what you'd expect it to be. We haven't yet
published the merger agreement. We will be doing a filing
with the SEC shortly and you'll see it but it will not
provide any surprises to you.
(Ray Lewis): And just to be absolutely clear that would be a fee being
paid by Moore to Wallace in that event? Or is it somewhat
dependent upon what happens?
Mark Angelson: I'm not sure I understand your question. A break-up fee is
payable in the event that somebody in the very, very
unlikely event that somebody else comes along and tops our
bid and we decide not to match it.
(Ray Lewis): Okay just in that situation, great. And just secondly I
know you touched on some of the anti-trust issues and
obviously you don't view that as an issue. Are there any
other areas regulatory wise that may raise some questions;
I don't know perhaps relating to a Canadian Company
acquiring an American one? Are there any sort of special
challenges that that presents or is that a non-issue?
Mark Angelson: Actually you'll find that relations between Canada and the
United States are quite cordial these days and you can
assume that we are very comfortable across the entire
regulatory spectrum.
(Ray Lewis): Great, thank you very much and again congratulations.
Mark Angelson: Thanks (Ray).
Operator: Your next question comes from (Larry Adder) with UBS
Warburg.
(Larry Adder): To clarify the only thing that I do not understand, if
someone were to choose all cash or all stock at the end
what would be the basis of the consideration?
Mark Angelson: I'm sorry when you say "basis" what do you mean?
(Larry Adder): Well if I were to choose all cash, I don't want $14.40. If
were to choose stock, I wouldn't want 1.05 of the value of
the MCL. There must be some basis by which you're choosing
all cash or all stock.
Mark Hiltwein: We're not quite understanding your question but.
Mark Angelson: Do you mean if you choose all cash how much cash are you
going to get?
(Larry Adder): Yes.
Mark Angelson: Okay. The answer to that question is very complicated.
There will be a formula that will get published in due
course about, you know, how that amount is determined. But
in rough terms you'll find that it'll have to do with
where the stock trades on a variety of days at a variety
of times.
(Larry Adder): So it'll be based on a pricing period?
Mark Angelson: It will be based on extracts from a pricing period, yes.
(Larry Adder): Okay, when you say extracts do you mean random days in one
pricing period?
David Jones: All that's going to be spelled out in the merger agreement
that's going to be out in a couple of days. It's very
complicated.
Mark Angelson: Tell me if this answers your question. The value is going
to be one point, the value of 1.05 more shares wherever
that is at the time plus $14.40 in all cases at the day
before the closing.
(Larry Adder): Okay. You'll lock in some consideration based on some
pricing period and you'll be electing based on a certain
value.
Mark Angelson: You know rather than talk about that very complicated
formula I think we're going to leave it to those who are
interested in that to read it in our SEC filing.
(Larry Adder): Okay. And if you could just is there any other besides
U.S. regulatory hurdles are there any regulatory hurdlers
in Canada to get by just to clarify some previous
questions?
Mark Angelson: Nothing that's not absolutely pro forma.
(Larry Adder): Okay, thank you.
Mark Angelson: The (key thing) about Canada as Delaware, you know, you
will basically get it right for regulatory purposes.
Operator: Your next question comes from (Glenn Krevlin) with (Glenn
Hill) Capital.
(Glenn Krevlin): Yes, good morning. I had a couple of questions. First in
trying to understand Wallace, could you give me some sense
of the portfolio; a percentage of revenues coming from
various businesses are sort of the first question?
Then the second would be you referenced the $200 million
of free cash flow and the ability to buy back stock. Under
the credit agreements that you think you'll put in place
how much do you think you'll be able to buy, what will be
the constraints there?
David Jones: Well let me address the first question, the portfolio.
We're made up of two segments, our forms and labels
segment, which is about 50% of our total revenue and then
the integrated graphic segment, which is made up of what
we call our targeted communications products which are the
more focused marketing to one type product and commercial
print and that's also about 50% of our business.
Under forms and labels it has the standard products of
business forms and the various ranges of label products
underneath that. But those two segments are roughly 50-50
in our total sales.
Mark Angelson: You asked a question about cash available for stock buy
backs under our committed financing and the answer is that
obviously there will be some more negotiation with the
banks between now and the closing. But I'm sitting here
looking at a number that says $120 million, so watch out
for our stock buy backs.
(Glenn Krevlin): Okay. And just one follow-up to the first part of my
question so I can just understand Wallace a little better,
how have these various segments been roughly growing or
what's been sort of the revenue numbers in these? And how
much forms and how much labels and I don't mean to get
into too much detail but I'm just trying to understand the
company.
David Jones: Well first of all we don't break out the sales, the
individual sales, in forms and labels in our filings.
We're about we're $1.5 - $1.6 billion in total sales and
it's roughly split 50-50. You can get the exact numbers
from our filings and our reports.
You know the businesses have, of course you know the
recession that we're in has changed a lot of things and
we've also gone through a restructuring so if you just
look year-to-year that doesn't tell the whole story.
Basically the forms and labels business has been growing
modestly. Labels has been growing quite rapidly for us
surprisingly even through this downturn. On the integrated
graphics side where we've had some significant closures of
some of the unprofitable operations, sales there have more
or less been stable.
Under as you look at the actual products in the commercial
print area, some of the commercial print areas are
actually growing quite rapidly even through this downturn.
And we have been moving the business more toward our
nationwide contractual business which is the key strength
of Wallace.
The commercial print business has traditionally been a
local transactional business. The local transactional
business has been the part of this market that's been most
severely hit by the downturn and that has declined in
sales. But the portion that we're selling to the national
contracts, they're growing very rapidly.
They're growing rapidly as a percent but they're coming
from a small basis so the sales growth in that area does
not offset the sales losses in the transactional business.
However going forward as we pick up momentum in the
national sales and this is the reason that I said earlier
that I was excited about the
combination and bringing in the Moore customers and the
Moore sales force into selling these products would just
accelerate that already accelerating trend of sales growth
for that type of business. We're truly changing the game
in commercial print and the way we go at it and go to
market.
(Glenn Krevlin): Great. Mark, I'm assuming that you believe that the top
line opportunity of merging these two portfolios is as
compelling as the cost synergies here?
Mark Angelson: That is correct.
(Glenn Krevlin): Okay, thank you. I'll let someone else go.
Mark Angelson: Thank you.
Operator: Your next question comes from (Tim Ewington) with Goldman
Sachs.
Mark Angelson: Hello (Tim).
(Tim Ewington): Hey, thanks. Just a follow-up, with the new entity just
wondering what's going to happen with the (Greenwich
Street Capital) stock and is (Fred) Eckert going to be the
Chairman of the new entity.
Mark Angelson: (Fred) Eckert is the Chairman of our Board and is going to
continue to be the Chairman of our Board. I've learned to
let (Fred) speak for himself about what he's going to with
his shares.
But I can tell you this when (Fred) agreed at the
unanimous request of our Board to serve as its' Chairman
he made a statement to all of us about his belief in the
program that we have here for growing this business. I
haven't
spoken to him about it since yesterday, but (Fred) is in.
(Fred) is supportive and you know how to find him if you
want to talk to him directly.
(Tim Ewington): Excellent. And how long?
Mark Angelson: It's also the case that the so called overhang problem
that dogged our stock for awhile last year is even if
(Fred) were inclined to go, which he is not as I
understand it, you know the percentage of the ownership of
the combined entity that the (GSC) partners funds manage
is well down into the single digits now and we think that
issue is gone forever.
(Tim Ewington): Okay. And how long had David Jones committed to sticking
around to help integrate the two entities?
David Jones: Do you want me to answer that Mark? I have a full time job
for the next four or four and half months or until this
deal closes. We want to make sure this deal closes and we
want to make sure we deliver the results in the mean time.
And we also want to make sure that we get the integration
plan put together so that we hit the ground running and do
it very well.
(Tim Ewington): That's excellent, thank you very much.
Mark Angelson: In my 30 years in business I have not seen a more
collegial combination between two management teams. If
David is about to depart it would be almost about a big a
surprise to me as it would be to him.
(Tim Ewington): Okay, we appreciate that. Thanks.
Operator: Your next question comes from (Benjamin Path) with (RBC).
(Benjamin Path): Hi, good morning. Sorry if I missed this, what are the
maximum cash and the maximum stock you guys are going to
issue?
Mark Hiltwein: Cash is $606 million and as far as shares it's 44.2
million shares.
(Benjamin Path): So they're locked in at that number, that's the maximum
amount?
Mark Angelson: That's right. We're not going to be issuing any extra, any
material number of extra shares. It's locked in. It's 1.05
for shares for each Wallace share, 28% of the company;
that's it.
(Benjamin Path): Okay, so no additional. One more question, with regard to
the regulatory bodies, which specific regulatory bodies
are going to need to have approval over the transaction?
Are Canadian bodies and which ones if so?
Mark Angelson: You know what we do not have our friends from (Osler,
Hausken and Harcourt) with us this morning. I do not
believe that there will be any impediments at all in
Canada.
And in respect of U.S. regulation this is just
(unintelligible) standard, you know, this will we will
obviously go through the Hart-Scott process. We envision
no difficulties with that. The SEC will review our
documents. The shareholders of Wallace will vote and we
will close this transaction.
(Benjamin Path): Great, that's spectacular. I have just one more question.
When do you think those filings will be made, when do you
think the (HSR) and the Canadian and the filings?
Mark Angelson: Very, very soon.
(Benjamin Path): Much appreciated and congratulations.
Mark Angelson: Thank you very much.
Operator: Your next question comes from (Matt Gottlin) with
Chesapeake Partners.
(Matt Gottlin): Hi guys, congratulations.
Mark Angelson: Thank you.
(Matt Gottlin): Two quick questions, first of all could you give us some
more recent background of how you guys came to this
transaction? And the second question is just a little
further clarification of your earlier answer to the all
cash or all stock terms, I didn't quite understand those?
Mark Angelson: The answer to the first one is a little easier than the
answer to the second one. When we arrived at Moore in
December of 2000, one didn't have to be inside of Moore
for very long to figure out that a combination with
Wallace would be absolutely compelling under the right
circumstances. We've now achieved those right
circumstances.
We have had some discussions back and forth at various
levels and with various degrees of formality over a period
of time with Wallace. But the latest rounds of discussions
began in earnest in late August of this year when I picked
up the phone and called one of the Wallace Directors and
said I'm sitting here and looking at a set of numbers that
I find so compelling that I
think we just need to talk about this and that dialogue
into which David Jones was brought very quickly has
resulted in where we are today.
(Matt Gottlin): Okay, so Wallace did not go check the market to see if
there were any other parties?
Mark Angelson: I can't speak for Wallace, but I'd be very surprised if
Wallace sort of sat around and just said yes.
David Jones: I think all of the activities that we went through will be
fully disclosed in the proxy when that gets published.
(Matt Gottlin): Okay, great. And then just back to those terms. If someone
elected all cash and everyone else elected all stock or
vice versa, what would that person get?
Mark Angelson: The answer is that, you know, there's going to be a pro
ration, so you're going to need to read this. It's
complicated and you're going to need to read this in our
SEC filings. But there is going to be pro ration.
Is it possible that all of the elections fall perfectly in
line that everybody who elects cash will get cash and that
everybody who elects stock will get stock? Yes, it is
possible. It is much more likely that people will end up
with a pro rata piece.
(Matt Gottlin): I understand that. But in the case where it fell out
perfectly, what would those amounts be is the real
question, what would you get?
Mark Angelson: Tell me where the stock's going to close on the day before
the closing and I'll answer your question for you. We
can't know that yet.
(Matt Gottlin): Okay.
Mark Angelson: Although I see that Moore is trading up nicely today.
(Matt Gottlin): Yes, it is. Thanks guys.
Operator: Your next question comes from (Randall Rodinsky) with
Credit Suisse First Boston.
Mark Angelson: Good morning (Randall).
(Randall Rodinsky): Thanks. Just a couple questions on the synergies, can you
just clarify how much of the synergy target is cash versus
non-cash? And as well how much of the synergies come from
increased revenues? Thank you.
Mark Hiltwein: I think it's tough to quantify today what portion of the
$50 million of synergies is going to be cash versus
non-cash. And certainly as we get into the details we will
communicate that to the street. The second question was on
sales synergies?
(Randall Rodinsky): (Unintelligible).
Mark Hiltwein: Can you tell us the second question?
Mark Angelson: I think what you're asking are guys how low hanging is
this fruit and where's it coming from? And if that's your
question the answer is we've got $50 million in identified
low hanging fruit and that's all we can say about it at
this point in time. We will have more to say about it in
the coming months.
(Randall Rodinsky): Okay, thank you.
Operator: Your next question comes from (Tom Eisenberg) with (PE
Shone) Asset Sales Management.
(Tom Eisenberg): Yeah, it's been answered. Thanks a lot.
Mark Angelson: Good morning (Tom).
Operator: Your next question comes from (Katherine Sterit) with
(Goshen) Capital.
Mark Angelson: Good morning (Katherine).
(Katherine Sterit): Good morning. Can you quantify for us a bit of a sense of
just how much the customer base is going to be broadening?
What kind of overlap do you have today?
David Jones: I think we're going to have to guess at that. Tom do you
have?
Tom Oliva: In evaluating the customer base we were very pleasantly
surprised that there is not much overlap and that this is
a broad opportunity to bring more of a national print
platform to these customers, so we see opportunities down
the road. We have complimentary and proprietary offerings
in both parties and we can extend that to the other sales
forces, so this is really a great opportunity to, you
know, grow the revenue line.
Mark Angelson: That was Tom Oliva, our President and Chief Operating
Officer Elect of Moore Wallace.
(Katherine Sterit): Great, thank you very much.
Operator: Ladies and gentlemen we have reached the end of our
allotted time for questions and answers. Mr. Angelson do
you have any closing remarks?
Mark Angelson: Ladies and gentlemen this combination is absolutely
compelling. We are thrilled that the business conditions
and the personal and professional relations became aligned
over the last several months so as to allow us to get to
this point.
We look forward to communicating with you further in
conference calls that are already scheduled. We will have
our earnings call, Mark is it on February 12?
Mark Hiltwein: February 12.
Mark Angelson: February 12, we may have more to say then. We will we hope
have our documents filed in advance of that call and will
be able to answer more questions for you. We thank you all
for the time that you've taken to be with us this morning
and we wish you well.
David Jones: Thank you. Let me just echo just what Mark just said. I
share his sentiments exactly. This is a great combination.
It's got lots of potential for all our people and for all
our customers. And we really look forward to working with
our colleagues on the Moore side and this one is going to
be gangbusters so stay tuned. Thank you very much and that
concludes our call.
Operator: Ladies and gentlemen thank you for your participation in
today's Moore Wallace conference. This concludes today's
call. You may now disconnect.
END