By Lynne Marek | Crain's Chicago Business | January 6, 2017
When R.R. Donnelley split in three in October, the move was supposed to “unlock value.” But that's not what has happened so far for shareholders.
The three publicly traded companies have collectively lost about 12 percent of their overall value in the past three months, according to White Plains, N.Y.-based CJS Securities, which received investment banking fees from the restructuring. Making matters worse for shareholders, dividend payments were also chopped by about a third.
“The whole thing is absolutely a ripoff,” said one Wisconsin shareholder who didn't want to give his name. “I'm really ticked off.”
R.R. Donnelley Senior Vice President of Finance Brian Feeney declined to comment, and the other two companies didn't respond to a request for comment.
R.R. Donnelley's market capitalization before the spinoff was about $3.3 billion, but today that value for the three companies collectively has sunk to $2.9 billion.
Last year, the company reportedly mulled a merger with a division of Norwalk, Conn.-based Xerox.
R.R. Donnelley's new headquarters are
in the Leo Burnett Building, 35 W. Wacker
It's no secret that R.R. Donnelley's legacy printing business has been declining along with the rest of the industry, despite the company's efforts in recent years to buy up myriad smaller printers to keep revenue growing in an era of dramatic shifts to digital. Nonetheless, when the Chicago-based printing behemoth announced in August that it would break up, it suggested the move would allow each of the three companies to pursue an improved and more tailored strategy.
Maybe that's still to come, but the biggest remaining company, the one that kept the R.R. Donnelley name and provides mailer, form and account statement printing services, has a lot of ground to recover. Its stock has plunged by almost a third, even taking into account the 1-for-3 reverse stock split the company undertook on the Oct. 1 spinoff date, presumably to preserve a higher number as its spawn took away the value of their businesses.
Total return for each of the three stocks, including dividends, was lower than the Standard & Poor's 500 return of 5 percent for the period since the split. R.R. Donnelley logged a 27 percent loss through yesterday, while the second-largest company of the three, LSC Communications, which provides printing and related services to retailers and publishers, was down 4 percent. Only Donnelley Financial Solutions, which caters to the financial and legal industries, had a positive result, delivering a 5 percent return.
The figures are worse, and all negative, if the outcome is measured from prior to the spinoff when the company was floating stock prices for the two new companies.
A decline in overall dividend income likely has something to do with the lost value. R.R. Donnelley reduced its per-share dividend to 14 cents per quarter, from 25 cents, and further reduced its payout with the 1-for-3 reverse stock split. While LSC Communications still provides a 25-cent quarterly dividend, Donnelley Financial doesn't have one at all.
The remaining R.R. Donnelley was saddled with most of the debt, which now stands at $2.2 billion. It had planned to sell some of the shares it owns in the two new companies to help pay the obligations down.
"High leverage and (a) recent credit rating downgrade have created major concerns for the company," Chicago-based Spin-Off Advisors said in a Jan. 3 report.
S&P Global Ratings downgraded R.R. Donnelley in October, shortly after the three-way split, saying "our weak business profile assessment primarily reflects our unfavorable view of the company's current operating environment and the growth prospects for the print industry."
In September, before the spinoff, Moody's Investors Service also downgraded its rating on the debt.
To view the article on chicagobusiness.com, click here: R.R. Donnelley shareholders lose in breakup