Quest for synergies begins in printer market

By Marc Hijink, NRC Handelsblad – OutputLinks.com

Now that Canon has declared its bid for Océ unconditional, integration between the two printer makers is the name of the game. Océ CEO Rokus van Iperen is unsure how the near future will shape up, but there’s one thing of which he’s certain: after a sustained and difficult period, a new season of growth is about to dawn for Océ. The Venlo-based company took three important hurdles last week on the way to closing the transaction: the tender offer period expired, the Enterprise Chamber (the highest Dutch commercial court, Ed.) dismissed the requests of minority shareholders and Canon declared its offer unconditional, with 71% of the shares of Océ in hand.
Van Iperen – Océ CEO since 1999 – looks comfortably at ease in his office, overlooking the River Meuse. He joined Océ in 1978 as a mechanical engineer when the company generated annualized revenues of approximately EUR 500 million. Océ had just acquired its largest European competitor, Ozalid. “We doubled in size, from 6,000 to 12,000 employees.” Nowadays, Océ has sales of EUR 2.6 billion (2009) and has reached the limits of its growth. Océ is the last European player between the huge printer and plotter manufacturers such as Xerox and HP in the US and Ricoh and Canon in Japan. “The consolidation process caused the number of printer makers to contract from 100 in 1978 to no more than 25 today,” says Van Iperen.

In 2010, Océ threw the towel in the ring. The company, proud of its Limburg heritage and 132-year history, was just too small to continue autonomously. It was not a question of technological know-how, but simply distribution channels. The strategic alliance with the Japanese printer manufacfurer Konica Minolta was insufficient to survive the financial crisis. The problems in the financial community and the construction sector caused demand for high volume and wide format printers to stagnate. An empty order book, high stock levels and significant debt drew Van Iperen to the inevitable conclusion that Océ needed a stronger partner to stem the slide into relative obscurity. “The crisis accelerated this process.”

Negotiations with Canon took place over nine months, a period in which Océ continued to cut costs. The workforce dropped in 2009 from 23,000 to close to 21,000 and even the much-vaunted Research & Development bastion saw its budget pressured. “It was not only necessary to survive, but to keep the company attractive for potential buyers,” Van Iperen explains.

He is a firm believer in the transaction that he announced on 16 November 2009. “The emotions felt by our people then overcame me too, but then much earlier in the summer of 2008 when we made it clear to our stakeholders that we were keeping all options open. That’s when the penny truly dropped.”

Negotiations with Canon were tough, says Van Iperen. “As Océ, we’ve been through the necessary acquisition processes in the past and know how it’s done. We kept the lines open to other parties right up until the end.” The most important precondition negotiated was keeping Océ as an independent company within the Canon group. Technological development remains in The Netherlands and there are no negative staffing consequences directly related to the integration.

In its new composition, Océ will be responsible for three divisions, although the office printer division transitions to Canon. How integration proceeds from here is not entirely clear. “These discussions are only just starting up and it will take a few months before everything is clear.”

He emphasizes the enthusiasm among staff. “Our R&D people asked immediately for Canon’s telephone number.” There are cultural differences with Japan, but also a number of similarities. “At Canon, loyalty is high too and people work for the company for years. The sales force speaks the same language, as was clear during the first careful getting-to-know-you sessions held in the US and Europe.”

Canon has promised to keep the Océ sales force intact, although it is not yet clear how the customer base will be split between the two companies. No details have yet been disclosed as to the shape of the future IT infrastructure, essential for knowledge-intensive companies. Océ is on the verge of executing a dramatic automation project, but the degree to which this fits within the Canon infrastructure has yet to be determined.

Océ took two years to streamline the automation of its largest acquisition, the US distributor Imagistics. “And even that was faster than anticipated,” says Van Iperen. Océ acquired Imagistics in 2005 for USD 754 million. Five years later, Canon acquired all of Océ for EUR 730 million; EUR 1.4 billion including debt.

The acquisition shows how quickly the printer market collapsed.

In hindsight, shouldn’t Océ have put itself up for sale at another moment? “Ah, in hindsight, in hindsight…” Van Iperen murmurs. He denies rumors that Océ was looking to be acquired as long ago as a decade. “This was never a discussion item. We were not ready for that. We did everything ourselves in those days, from development to distribution. Nowadays, we are a modern, open organization.”

Synergies

How can Océ and Canon leverage each other’s strengths? The partnership delivers technological benefits because they can build on each other’s innovation and share the cost of research. Océ is market leader in continuous feed and high volume and wide format printers. Canon, ten times the size of Océ, is strong in office printers. The companies will connect their distribution networks, and Van Iperen sees little overlap. Canon products are marketed through dealers and distributors, Océ’s through direct sales and customized solutions. A strategic benefit to Canon is that the acquisition of Océ terminates the alliance between its Japanese competitor Konica Minolta and Océ. Canon has a robust distribution network in Asia, and there are plenty of growth opportunities for Océ there. Océ’s unit in western Canada, where its wide format printers are manufactured, stays up and running.

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Executive Summary

On Thursday 4 March, Canon declared its public offer for Océ shares unconditional, after a vast majority of shareholders had tendered their shares. In a letter to all employees, Rokus van Iperen said ”the future begins today. It is a landmark moment in our proud history that stretches back over 130 years. The future holds a brighter outlook for Océ, our customers and ourselves. Together we form the best possible combination in the consolidating global print industry, with unrivalled scale in R&D, manufacturing and distribution. The strength of our combination is in the complementary nature of both companies, with only limited overlap in terms of portfolio and geographic spread.”

Details:

• The tender offer by Canon for Océ expired on Monday 1 March. Canon received more than 71% of the total Océ ordinary shares outstanding, and declared the offer unconditional on Thursday 4 March.
• The evening before, the Enterprise Chamber in Amsterdam – the highest Dutch commercial court – dismissed the requests by minority shareholders Hermes/USS.This opened the way to further integrate our activities with Canon without delay.
• The transaction is expected to close on 9 March 2010 after which Océ officially becomes part of the Canon family.
• Shareholders who have not yet tendered their shares under the offer have been granted the opportunity to do so in a post-acceptance period from 5-19 March 2010.
• Canon has declared its wish to own all ordinary shares of Océ. Depending on the total number of shares offered to Canon by Friday 19 March, the process of delisting from the stock exchange in Amsterdam can begin. Otherwise Océ will stay listed, with minority shareholders.
• Over the past few months, members of the executive boards of both Océ and Canon have met to discuss the planned combination at a conceptual level. The first regional meetings took place recently, between the senior management teams of Océ in Europe and Canon Europe, and Océ North America and Canon USA. At these regional meetings, summaries of each others’ businesses were presented.
• The first large purchase order from Canon in Asia for Océ products was recently received. Canon Marketing Japan ordered 30 Océ PlotWave 300 units and will sell them under the Océ brand in the Japanese market. As mentioned when the intended combination was announced, Asia is one of the growth markets where Canon’s strong sales and marketing power has the potential to significantly increase the market share of Océ products.
• The potential of the Canon-Océ merger is enormous. Canon is one of the best known and respected brands in the world. Within Canon, Océ will have a leading position in every market served. The ability to leverage each other’s technical prowess and resources cements Océ’s competitive position for the future.

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