Antalis Merger HEC

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312-097-1 AntalisMAP (A): Merging to Manage Market Turbulence This case was written by Bertrand QUÉLIN, HEC Paris, as a basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. © 2012 HEC Paris & Bertrand Quélin. Not to be used or reproduced without the permission of the owner. ecch the case for learning Distributed by ecch, UK and USA North America Rest of the world www.ecch.com t +1 781 239 5884 t +44 (0)1234 750903 All rights reserved f +1 781 239 5885 f +44 (0)1234 751125 Printed in UK and USA e [email protected] e [email protected]

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Transcript of Antalis Merger HEC

  • 312-097-1

    AntalisMAP(A):MergingtoManageMarketTurbulence

    This case was written by Bertrand QULIN, HEC Paris, as a basis for classdiscussionratherthantoillustrateeithereffectiveorineffectivehandlingofamanagerialsituation.Theauthormayhavedisguisedcertainnamesandotheridentifyinginformationtoprotectconfidentiality.2012HECParis&BertrandQulin.Nottobeusedorreproducedwithoutthepermissionoftheowner.

    ecch the case for learningDistributed by ecch, UK and USA North America Rest of the worldwww.ecch.com t +1 781 239 5884 t +44 (0)1234 750903All rights reserved f +1 781 239 5885 f +44 (0)1234 751125Printed in UK and USA e [email protected] e [email protected]

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    AntalisMAP(A):MergingtoManageMarketTurbulence

    Disclaimer:ThiscasestudywaswrittenbyBertrandQulin,ProfessoratHECParis,withthesupportandassistanceof JonathanHayes (HECDoctorate student). Itsprimarypurpose is to serveasananalyticalframework for class discussions. In noway does it seek to evaluate the relevance or efficiency of themanagement practices and choices described. The accuracy or completeness of data and informationpresentedisnottheresponsibilityofcompaniescitedherein.Acknowledgments:Thisprojecthasreceived financialassistancefromtheHECFoundation (PMP2011).TheauthorwishestoexpressgreatthanksandappreciationtoStphaneCourtot,PierreDarrot,AndrewHarvey,PascalLebard,HervPoncin,andGillesRaynaudforalltheirhelpandcooperation,withoutwhichthispublicationwouldnothavebeenpossible.SpecialthankstoThanhHLBargasforherexcellenttranslationandeditingjob.

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    Outline

    IntroductionI. Antalis:AMultiFacetedB2BDistributor

    A. AntalisBusinessesB. AntalisGeographicScope

    II. StayingonCourseintheStorm

    A. TheEuropeanGraphicPaperMarket1.PaperProducers2.PaperDistributors3.AntalisMainCompetitors

    B. TheFrenchandEuropeanPackagingMarkets

    III. TheMergerwithMAP:StrengthinUnity

    ListofFigures

    Figure1:AntalisBusinessUnitsin2007Figure2:EuropeanGraphicPaperConsumption20052008Figure3:EBIDA/Sales20052009Figure4:EuropeanPulpandPaperProfitabilityFigure5:EuropeanPaperDistributionMarketin2008Figure6:MRealsCostStructurein2008Figure7:PaperandpaperboardbalanceinEurope20072008Figure8:NumberofPaperandBoardMillsandBoardProductioninEurope19912010Figure9:ExamplesofPaperPricesinEuropeDec.2001Dec.2010Figure10:MonthlyAveragePulpPrices(NBSK)20002010Figure11:DistributionMarketConsolidationovera10YearPeriodFigure12:SalesofEuropeanDistributorsFigure13:BreakdownofMaterialsinFranceforPackaging2007(12.8Milliontons)Figure14:PaperBasedPackagingValueChainFigure15:SalesofFrenchPackagingMerchantsFigure16:PaperDistributorMarketin2007(in000tons)Figure17a:SequanasNetDebt20062009Figure17b:AntalisNetDebt20062009Figure18:BreakdownofAntalisSalesFigure19:EvolutionofAntalisSales20052008

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    IntroductionSeatedinhisofficeonthetopfloorofBuildingB,PierreDarrotassessedhispastsixyearsattheheadofAntalis: six years rich in new developments, duringwhich time he hadmanaged to stay at the helmdespitechallengingmarketconditions(generaldecline inpriceandvolume),thusenablinghiscompanytomakethemostofthesituationthrough itspositioningasan independentdistributoranda judiciousacquisitionstrategy.Herememberedthefirstmonthsof2001whenhehadjoinedtheGroupinthemidstofcrisis,andwasconfrontedwithanoperatinglossof40millionEuros.Decisionsbyformermanagementteams to integrate some twenty or so different European companies into a highly centralizedmatrixorganizationwere a complete failure: loss of reference points and corporate identity, lowered clientconfidenceandlackofreactivityallresultedindemotivatedlocalteams.ItwasuptoPierreD.toreversethisdownwardtrend.ByrefocusingsalesforcesonseveralkeybusinessunitsPrintandOfficeandbyrestructuringresponsibilities,notablyatthecountrylevel,Antalisrecoveredthenextyearwithapositiveoperatingincomethatcontinuestoprogresstothisday.Pierre D. was optimistic about his accomplishments for good reason. After six months of intensenegotiations,Antalishad just finalized itsmergerwithMAPMerchantGroup.AssoonastheEuropeanCommission cleared the transaction, contracts were signed and handshakes exchanged. This mergerbetweenthen3andn4giantsofEuropeanpaperdistributionwouldenableAntalistoachievecriticalmassandconsolidate itsEuropeanmarketpositionsallthewhiledevelopingnewgrowthopportunities.Thenewly formedGroupwouldcreategreatsynergies,withAntalisbecomingn1 inEuropeandn4worldwideinB2Bpaperdistributionandpackagingproducts.Inamarketbesetbychronicoverproductionand price pressures, this acquisition occurred at a propitious time and provided Antalis with theopportunitytoenhanceitscompetitiveedge,evenif,asPierreD.isfullyaware,thehardestpartisyettocome.Usingtheinformationinthecasestudy,evaluatethefollowingissues:Antaliscompetitiveposition,Itseconomicmodelandpotentialevolutions/prospects,TherationalebehindthemergerwithMAPandthesynergiesgenerated,Futurepathsforgrowth.I. Antalis:AMultiFacetedB2BDistributor

    Established in2000,Antalis isaB2Bdistributorofpaperandpackagingproducts,promotionalgiftsandvisualcommunication.ItisafullyownedsubsidiaryofSequanaCapital,aFrenchinvestmentfund.SequanaCapitalSequanaCapitalisamajorplayerinthepaperindustry,oneoftherareverticallyintegratedgroupsinthismarket.ItnotonlyproducespaperthroughitssubsidiaryArjowiggins(32%oftotalsalesin2008),butalsodistributes paper through Antalis (68% of total sales in 2008). After years of being a familyownedbusiness,with shares predominantly held by theAgnelli family, Sequanas corporate capital structureevolved. Since 2009, its shareholders include Exor (26.6%) andDMLD (21.8%); the remaining (50.6%)shares are publicly traded on the primary market in Paris. Historically diversified (assets held in theproductionandtradeofBurgundywinesAntoninRodetorinfundmanagementPermalGroup),thisholdingunderwentmajor strategic concentration in late2007 to focus its activitiesexclusivelyon thepapermarket.AntalisAs adistributor,Antalisoccupies an important, evennecessary, role in theproducerconsumerpapersupply chain. Producers transform pulp that they manufacture or buy, then distributors supply thefinishedpaperproducts to customerswithwhom theyhavewoven strong tiesover thepastdecade.Distributorsplaya strategic rolebecauseon theonehand, theirunderstandingof themarketenablesthem toguideandadvise their clients in the choiceofproducts that respondprecisely to the latters

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    needs,andontheotherhand,theirabilitytoguaranteerelativelyshortdeliverytimes(generallyJ+1,orsometimessamedaydelivery)helpcustomerstooptimizeinventorylevels.Toserve theircustomersefficientlyandwith thehopesof retaining them,distributorsoffernumerousservicessuchas30daypaymentterms,24hoursamplemailing,andthepossibilitytomodifyordersorreturn delivered goods within 8 days, 24hour delivery or twiceaday delivery in the Paris regionCustomerrelationshipmanagementiskeyinthedistributorbusinessandAntalisisparticularlyattentiveto this factor: ingeneral,approximately30%of itscustomersmeetwith its salespeoplemore than20timesayear,and25%meetwiththem10to20timesayear.Theremaining45%purchase inbulk,someet with Antalis sales forces less than 10 times a year. In addition to these ongoing facetofacemeetings,tofurthernurturetheircustomers,Antalissalesforcescommunicatethroughtelephonesalescallsandtelemarketingcampaigns.In 2009, Antalis succeeded in launching an ecommerce platform for its product catalogue, allowingcustomers toplace theirordersonlineatanytime.Thisdrasticallyshortenedtheordertakingprocess,andtherefore,reducedorderleadtimes.Likewise,itminimizedthepossibilitiesforerrors.Antaliswasthefirstdistributortooffersuchaservice.Since its beginning, Antalis, acting as a central purchasing organization, has always attached muchimportance to its statusasan independentdistributor.The companysexecutivesattribute its successpartly to this very independence that strengthens Antalis bargaining power visvis upstreambusinesses. Independent distributors purchase their supplies in bulk from various national andinternationalproducerstonegotiatemorefavorableprices,termsandconditions.Somedistributorsaremorevertically integrated, that is, theyareaffiliatedwithaproductiongrouporwith independentproducers.This isalso thecasewithAntalis,whoseholdingcompany,Sequana,alsoowns a paper producer (Arjowiggins, ranked 7th worldwide). Certain executives would like to see atighterverticalintegrationbetweenthispapermanufacturingcompanyandAntalis.However,whilesuchintegration could potentially be beneficial for Sequana (system optimization yielding a whole beinggreaterthanthesumofitsparts),andjustintimelogisticscanperhapsbejustifiedatthesystemiclevel,there is no guarantee that synergies can actually be realized. After all, bringing together sales andproductioncansometimescreateconflict.Furthermore,asexplainedabove,Antalisactualsuccesscanbe explainedby its independence,which allows it to take advantageof the chronicovercapacity andoverproduction that characterize the paper production industry. Its interest at this time is to letproducers manufacture and accumulate endofpipe finished products, inventory that they musteventually liquidate. Another argument against tighter integration is that Arjowiggins does not ownintegratedpulpfacilitiesandisjustasdependentonpulppricesasisAntalis.

    A. AntalisBusinesses

    AntalisoffersPaper,PackagingsolutionsandVisualCommunicationmaterials.Inordertoanticipateandsatisfyourcustomersdiverseneeds,thecompanyoffersafullrangeofproductsandservicesintwomainsectors(GraphicpaperandPackaging),splitintofivebusinessareas:

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    Figure1:AntalisBusinessUnitsin2007

    In2007,priortoitsmergerwithMAP,Antaliswasorganizedaround5businessunits:

    Print (60% of sales in 2008): paper and envelopes for printing, design, publishing andcommunication.

    Office(24%ofsales in2008):paperandofficesuppliesforbusinessesintheprivateandpublicsectors.

    ThegroupalsodistributesCanonproductsinFrance.Packaging(5%ofsalesin2008):productsandequipmentforpackagingandprotectingindustrial

    goods.Visual communication (2% of sales in 2008): adhesive materials, posters and displays for

    pointofsaleadvertising.Promotionalproducts(3%ofsalesin2008):personalizedpromotionalobjects.Otheractivities(6%ofsalesin2008).

    Ofthesefivebusinessunits,thePrintandOfficeandVisualCommunicationsaddressthegraphicpapermarket.ThePrintandOfficesegmentscontinuetoensuremostofAntalissalesvolumeandareattheheartofitsbusiness.Yetoperatingmargins,increasinglyunderpressure,weredecreasingprogressively.ForthePrintbusiness,more precisemarket segmentation can perhaps rationalize operational costs and ultimatelyensure profitability. This activity depends largely on Antalis bargaining power with its suppliers, soconsolidation with upstream operations would be harmful. As for the Office business, it has beenconfronted since2004withadecline indemand foroffice supplies (both involume salesand sales invalue).ThissituationisexacerbatedbyconsumerspreferenceforsupplierssuchasLyreco,OfficeDepotorStaplesforwitch,paradoxically,paperisoftenbutalossleader.Moreover, end consumers alsoorder increasinglyon the Internet in thismarket segmentwherehighbrandvisibilityisessential.WhileAntalisproposesanimpressivechoiceofpaperproductsinitsextensivecatalogue,somehaverecentlyarguedthatthisbroadarrayofproductsisadetrimenttoaclearcompanymessageandawelldefinedcompetitivepositioning.Inthiscase,consolidationofcertainproductfamiliesshouldbefavoredtoenhanceAntalisoverallproductoffering,makingisclearerandmorevisible.ComparedtoAntalisothertwobusinesses,VisualCommunication,PackagingandPromotionalProductscontributesignificantly lesstothecompanysfinancialresults.However,theirsales increaseatasteadypaceandprofitmarginsarehigher(cf.Appendix1).

    Figure2:EuropeanGraphicPaperConsumption20052008

    TheVisualCommunicationbusiness that targets, forexample, theadvertisingsectorwithmaterials forpointofsaleadvertising,hasaspecializedsalesforcepromotingnothinglessthanleadingproducts.The

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    Packagingsegmentisanotherexampleofthisverysuccess.Withacatalogueof1,500products,Antalis250salespeopleserve35,000customersthroughoutEurope.Profitabilitymarginsaresignificantlyhigherthanthoseofothermoretraditionalbusinesses.ThePackagingbusinessprovidesprofessionaladviceonproducts and supplies standardor custompackagingproducts to industry. Theoffering includesbothpackaging andprotectionmaterials for transported goods.Theseproducts range fromKraftpaper, topaperboard boxes and bubble wrap, to anticorrosion protection, and even to bespoke logistics andtechnicalsolutionsfortheexportmarket.AntaliscanoffercustomspecificpackagingthankstoitsteamofqualifiedengineersinitsinternalPackagingDecisionCenterwhoworkwithstateofartCAD(ComputerAidedDesign)totailorsolutionsthatmeetprofessionalrequirements.Althoughthemarketforpackagingmaterials inEuroperemainsratherfragmentedandnoclear leadersemerge,theelongationof logisticschains, combined with the importance of road transport, promises interesting perspectives for thisbusiness.AsforthePromotionalProducts,itappearstobethemostdistantfromAntaliscorebusiness.Dedicatedtothemarketinganddistributionofpromotionalcorporategifts,itboastshighprofitmargins;inspiteoftheseresults,though,somearguethatthePromotionalProductssegment,theoperationsofwhich barely fall within Antalis scope of activities, diverts attention and resources away from thecompanystraditionalcorebusiness.

    In2007,premerger,Antalisproductmixwas composedof120,000products includingoffice,coated,offset,carbonlessandluxurypaperandenvelopes.Itsclientportfolioincludedprinters,graphicdesigners,publishers,advertisingandcommunicationsagencies forpaperproductsandspecializedretailers, largecorporations and governmentorganizations foroffice supplies (paper andprinter consumables).With98%ofsatisfiedcustomers,Antalisenjoyedthehighestclientsatisfactionrateintheindustry.Thiscanbeattributedinparttoitsefficientlogistics:thecompanymaintainedaninventoryof180,000tonsofpaperin80warehouses.Thesewarehousesarecategorizedaseithercentraldistributioncenterssuchas theone at MelunSenart (France) covering 42,500 m2, or regional distribution centers designed forfastmovingproducts.

    B. AntalisGeographicScope

    PriortoitsmergerwithMAPin2007,Antalisoperatedin36countries,predominantlyinEurope(90%oftotal sales in 2007), and held leading positions in France, Belgium, Switzerland, Turkey, Slovakia andPoland.Thecompanywasalsopresentonthreeothercontinents:Asia,SouthAmericaand(South)Africa.Whilethecontributionsofthesemarketstoperformanceandprofitabilityweremodestapproximately9%ofAntalissales,theywereneverthelessstrategic inviewoftheirgrowthpotential.Withthisvastglobalpresence,Antalisgenerated close to2billionEuros in sales. Its73 regionaldistribution centersservedaportfolioof180,000customers.

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    Distributioncentersare important,particularly toensuresales fromstocks;thistypeofsalerequiresadequate stock capacity to guaranteeproduct availability in a vast customer zone.Customersbenefitfromoptimaldeliverytimes.Today,salesfromstocksinEurope(accountingfor55%ofvolumeand53%of revenues in the papermerchantingmarket in 2007), spurred on by distributors, iswidespread. Incontrast,sales fromproduction is thesaleofseveral tonsofaspecific typeofpaper inuserdefinedsizes.Inthiscase,thedistributorspecifiesitscustomersneedsandselectsthemostcompetentproducerto fulfill the contract. The producer then delivers the order directly to the customer, but bills thedistributor.II. StayingonCourseintheStorm

    A. TheEuropeanGraphicPaperMarket

    Followinga slight improvement in sales in2007 (+2.4%), theEuropeangraphicpapermarketdeclinedconsiderablyin2008.Volumesalesshrunkbymorethan4.4%.Producers,wholesalers anddistributors alikewitnessed adownturn in sales.Thedecrease indemandaffected the entire paper sector and there were no signs of improvement ahead. European clients,touchedbytheeconomicrecession,grewscarceovertimeastheyoptedtoconcentratetheireffortsandresourcesinsteadonimprovingcashflow.Costs,includingpurchasesofofficesuppliesandconsumables,werecloselymonitored.Fewereconomictransactionsledtofewerinvoices,contractsandadministrativedocuments.Theseconjecturalproblemswereaggravatedbyequallypreoccupyingstructuralissues.ThegrowingimportanceoftheInternetasadistributionchannelandcorporatedigitizationprojectsalsoinexorablyaffectedthepapersector.Newspaperandmagazineeditorsaswellasprinterssufferedfromaletdowninoperationsbecauseofdifficultiesinthewrittenpressandbookpublishingsectors(decreaseinpublications, growing use of digital documents, decrease in newspaper paging formats and design).Likewise, graphic arts specialists were impacted by cost reductions in paper advertising (marketingbudget cuts and fund reallocation in favor of alternative media, particularly the Internet, and theprogressivedisappearanceofmailorders,replacedbyecommerce).Consequently, further up in the value chain, office paper distributors were also affected by thisdevelopmentofdigitization(electronicconversionandmanagementofdocuments),whichproliferatedforobviouseconomicreasons,butalsoinresponsetogrowingsocietalconcernsandexpectationsaboutenvironmental issues.Finally,toworsenmatters,overcapacityonthepaperproductionmarketmade itdifficult fordistributorstopassontheirowncost increasestoendusers;thus,whiledistributorscostsrosesteadily,thepricepertonofpapercontinuedtofallbecauseofoverproduction.

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    Figure4:EuropeanPulpandPaperProfitability

    Source:Poyry

    Insummary,demandforgraphicpaperdecreased,regardlessofmarketsegment:volumesalesofgraphicpaper forprinting,corporateofficepaperandhouseholdprintingpaperdeclined.Distributorsales, likeproducer sales,were seriously affected in an environment inwhich salepricesdecreasedwhile costsremained stableoreven increased slightly.This said, theEuropeanmarket situationwasnotuniform;whiletheEnglish,FrenchandSpanishmarketswerestronglyaffected,withrecessionratescloseto6%ofvolumesales,theSwissandGermanmarketsin2008stillenjoyedsomegrowth,albeitweak.

    Figure5:EuropeanPaperDistributionMarketin2008

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    Inthiscontext,industryplayersproducersanddistributorsalikereactedvehemently.

    1. PaperProducers

    Paper manufacturing is concentrated among a relatively small number of companies: five industrialsaccountforover85%ofpaperproduction in2008. IntheEuropeangraphicpaperproduction industry,among the seven major actors, five are vertically integrated upstream, managing forests and/ormanufacturingwoodpulp(cf.Appendix7).Pulp is the starting point in paper production and can be manufactured using mechanical orsemichemicalmethods,ordeinking(recycledpulp).Thepresenceofverticalintegrationinthisindustryisperhapslinkedtothestrategicimplicationsofpulpprocurementanditscosts.Afterall,papermakersareallexposed to thesamesystemic factorsandshareasimilarcoststructure inwhichrawmaterialsandtheirtransportaccountforhalfoftotalcosts.

    Figure6:MRealsCostStructurein2008

    Theindustryishighlycapitalintensive,astheproductionof500,000tonsofpaperrequiresaninvestmentofapproximately500millionEuros.Costspertonofpapermanufactureddeclinemarkedlywiththesizeofproductionplants,mainlybecauseofindivisibleresourcessuchascomputerizedcontrolequipment.Toreap the benefits from economies of scale, then, companies do their utmost to keep the machinesrunning.However, overall European paper and paperboard consumption fell by 3.7% in 2008 (cf. Figure 7), adeclinethatacceleratedastheglobaleconomiccrisistookhold.

    Figure7:PaperandpaperboardbalanceinEurope20072008

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    Toadapt toaweakerdemandand to improveprofitability, leadingproducersattempted torationalizeproductiontopreventtheexcessstockpilingofunwantedsupplies.TheEuropeanpapermanufacturingindustrythereforecloseddownunprofitableproductionmills,reducedworkforces,shutdownmachines,madeinvestmentstoenhanceproductivityandevenbuiltrecyclingunitstominimizeprocurementcostsandtheirassociatedenergybills. Intotal,over5%oftheproductionvolume inEuropehasbeencloseddowninthelastcoupleofyears.

    Figure8:NumberofPaperandBoardMillsandBoardProductioninEurope19912010

    In2009,thecompetitiveclimatedeteriorated.Early2009wascharacterizedbybudgetcuts inthemaincostcenters,suchaspulpandenergy,butbythesecondsemester,thesecostshadrisenagain,furtherweakening producers in a bleak economy. Impacted by the sluggishness of European markets, theprofitability of producers acrosstheboard suffered despite scaleddown productions. Courtorderedliquidationsmultiplied. Evenmajor actorswere affected,with sales falling 525% (cf.Appendix 7).Asinventoriescontinuedtoaccumulate,paperproducerstriedtoselltheirproductswithpricesgoingdownuntiltheybarelycoveredthevariablecosts(inFrance,averagepaperpriceindexdecreased4%).

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    Figure9:ExamplesofPaperPricesinEuropeDec.2001Dec.2010

    InEurope(SwitzerlandandNorwayincluded),graphicandpackagingpaperconsumptionfellby4to5%.

    Figure10:MonthlyAveragePulpPrices(NBSK)20002010

    InFrance,graphicpaperconsumptiondecreased4.5%andthatofpackagingpaper,7.5%duringthesameperiod. Imports regressed (10.5% in France), as did exports (12.7% for France). In response to thismarketslowdown,Europeanproductiondroppedby11.7%.Yetinspiteofproducerseffortstoadjusttodemand, in 2009, selling price indices for paper and paperboard receded sharply in 2009 and byNovember,wasflirtingattheir2005level.Similarly, from 20082009, recycledpaper and cardboardpricesdeclinedby50% and thatofdeinkedpaper, by 40%. As prices continued to drop, costs followed an almost Vshaped curve. The pulpbenchmarkpriceindex(NBSK)fellfromMarch2008toMarch2009,butthenadoptedanupwardtrenduntil the endof 2009; following thepeakoil in 2008,whenoil and gasprices fell, thoseof chemicalproducts required forpapermakingdecreasedaswell.Despite thisupward trend,however, theannualaverageNBSKpulppricehaddecreased18%from20082009.

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    2. PaperDistributors

    Paper distribution was also a highly concentrated market; in 1998, seven actors shared 61% of theEuropeanmarket,andby2008,butfive(Antalis,PaperlinX,Papyrus,IgepaandInapa)accountedfor80%.The structureof thewholesalemarket grew increasingly concentrated as thesedistributors sought tointensifytheirmarketpower.Consequently,intheracetostrengthentheirsupplierandbuyerbargainingpowerandat the same timedevelop theirproductofferingandweaken the competition (actorswithalternative sales channels), leading distributors bought out their competitors. For instance, in 2007,AntalisdivesteditsItalianbusinesstotheAustralianPaperlinX,whichinturnsoldtotheformeritsFrenchsubsidiary,Axlium.Thatsameyear,themergerbetweenAntalis(n3)andMAPMerchant(n4),certainlythebiggestoperationof the year,gavebirth toanewEuropean leader. In2008, LectaGroup,withastrongpresence inFrancebutaweakerpresenceelsewhere inEurope,acquiredSecmarand integratedtwocompanies,MalmenaydeandNordPapier.Considering thesemarketmovements, itseems that inthefaceofchallengingconditions, leadingpaperdistributorsworkedhandinhandtokeeptheindustryafloat.Besidesthemarketconcentration,alsonotableinthisindustryisthechangeintheshareholdingstructureofseveraldistributors.StoraEnso,aleadingEuropeanpaperproducer,divesteditsdistributionsubsidiaryPapyrus toAltor,an investment fund.The foundingshareholdersofSequanaCapitalAntalisholdingcompanysoldtheirsharestonewinvestors.

    Figure11:DistributionMarketConsolidationovera10YearPerio

    3. AntalisMainCompetitors

    PaperlinX isanAustraliandistributorestablished in2000andquotedsinceApril17thof thesame

    yearon theSydneystockexchange. Its internationalexpansionbegan inNorthAmerica in January2001 with the acquisition of Spicer Paper, which enabled it to penetrate the American market.ImmediatelyfollowingthisacquisitionwerethoseoftwoCanadianpapermerchants,CoastPaperinMay2001andPapierTuregeon inApril2002.PaperlinXspenetrated theEuropeanmarket in July2002withthebuyoutofBunzlFinePaperintheUnitedKingdom,followedin2003bytheacquisitionoftheDutchBuhrmann,the largestEuropeangraphicpaperdistributoratthetime.Buhrmannwasquickly renamed PaperlinX Europe and became a major actor in the European graphic paperdistributionmarket.PriortotheMAPAntalismerger, itwastheEuropeanmarket leader ingraphic

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    paperdistribution.PaperlinXhasageographicallydiversifiedportfolio,with66%ofsales(invalue)inEurope,19% inNorthAmerica,andtheremaining16% inAsiaandOceania. ItsEuropeanportfoliohasevolvedovertheyears:in2007,forexample,itdivesteditsactivityinFranceandboughtAntalisItalian subsidiary.An integratedcompanyoperating inbothproductionanddistribution,PaperlinXengagedindiscussionstodivestitsproductionbusinessinlate2008.In2009,NipponPaperacquiredthisactivityfor600millionEuros.

    Papyruswasfoundedin1994bytheSwedishpapermakerStoraEnso,anditbecameitsdistributionsubsidiary.Thegroupgrew throughacquisitionsof itsEuropeancompetitors: theDutchScaliaandtheFrenchPapeteriesdeFrancein2004,thentheGermanSchneidershnein2005.In2008,asStoraEnsosought torefocuson itscorebusiness paperproduction ,PapyruswassoldtotheSwedishinvestmentfundAltorEquityPartners.In2009,Papyrushas38warehousesand2,800employeesin22countries.Itsells13brandsofgraphic(coatedandnoncoated),officeandspecialtypaper.

    Figure12:SalesofEuropeanDistributors

    Inapa, created in1965,wasan integratedPortuguesepaper industrialuntil2000,when it sold its

    industrialassets to focusonpaperdistribution.Like itscompetitors, thegroupalsoaccelerated itsgrowththroughdiverse,Europeanwideacquisitions,suchasthatoftheSwissBaumgartnerin2004and the Belgian Olympia in 2005. Inapa adopts a clear positioning strategy: it only operates incountries in which it ranks among the top 3. Therefore, it is present exclusively in 8 Europeancountries: Germany, Belgium, Spain, France, Luxemburg, Portugal, the United Kingdom andSwitzerland.ThemajorityofitssalesaregeneratedinGermany(54%ofsalesvalue)andtoalesserextent, in France (19% of sales value). Between 2002 and 2006, Inapas competitive position inFrance deteriorated steadily and sales spiraled downward, decreasing more than 37%. Bycomparison, Papyrus Frances sales doubled during this same period (through acquisitions),PaperlinXsdropped to zero (divestitureofAxlium toAntalis)andAntalis recededbyonly7.6%;despiteweakersales,AntalisstilleasilypreserveditsstrongleadershippositioninFrance.

    IgepaisalargeGermangroupfoundedin1970andoperatesinmorethan20countries,almostallofwhich are exclusively European (Turkey andAustraliabeing the two exceptions). The group is anindependentgraphicpaperdistributor,wellestablishedinNorthernandEasternEuropewithofficesin Germany, Denmark, Sweden, Norway, Finland, the Baltic States, Russia, the Czech Republic,Slovakia,Bulgaria,Croatia,BosniaandSerbiaItisnoteworthythatwhilethegroupispresentinItalyand in the United Kingdom, it is neither in France, Spain nor Portugal. Igepa works with 2,350collaborators;itsproductportfolioof7,000referencesisofferedtosome40,000clientsandin2008,generatedsalesof1.5billionEurosfor1.5milliontonsofpapersold.Today,thegroupisownedbyprivateshareholders.

    All in all,by2008, the integrationofpaperproductionandpaperdistributionhadappeared tobeanunsuccessful strategy for the five European leaders: Inapa and Papyrus were separated from theirproductionbranches, IgepaneveracquiredoneandPaperlinXdiscussed thepossibilityofdivesting itsproductionbusiness.Largeintegrateddistributorsseemedtobedisappearing.OnlySequana,withAntalisandArjowiggins, operated in both businesses, even if the twowerenot at all integrated and even if

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    Antalisremainedindependentinitspaperprocurementpractices.Thissituationwasadefiniteevolutioninthepaperindustrybecausehistorically,inmostintegratedgroups,distributorsdependedonproducers Papyrus relied on Stora Enso,MAP onMReal, InapaDistribution on Inapa, PaperlinX on PaperlinXManufacturing(forfinancialinformation,cf.Appendix10).Thesedistributorsproductandserviceofferingsdonotdiffermuchfromoneanother,withtheexceptionofAntalisecommercesolution, launchedon themarket inearly2009.All thesemajoractorsarealsopresentinthepackagingmarket.

    B. TheFrenchandEuropeanPackagingMarkets

    The packaging business can be broadly classified by function. Primary packaging is thematerial thatenvelopes,holdsand is indirectcontactwith theendproduct,suchasabottleofwater.Conditionersofferingthistypeofpackagingoftenproposebothstandardandcustomsolutions.Secondarypackagingusuallygroups theprimarypackages,as in thecaseofa6packofbottledwater.Tertiarypackaging isusedforbulkshippingandhandling,suchasapalletizedunitloadofbottledwaterthatisdesigntopacktightlyintocontainers.

    Figure13:BreakdownofMaterialsinFranceforPackaging2007(12.8Milliontons)

    Packagescanalsobecategorizedbythematerialfromwhichtheyaremanufactured:plastic,paperandcardboard,glass,metalorwood.Themarketofferingisverydiversified:theproductmixiscomposedofproducts of varying characteristics and made from different materials. This offering is designed torespondtothespecificneedsanddemandsofendusers.

    Figure14:PaperBasedPackagingValueChain

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    Consumersofpackagingmaterials aremainly industrials specialized in agricultureor in chemistry (forhealth and beauty products). These consumers require varied product compositions such as glasspackagingmaterials (bottles, jars,pots) forperfumes,wineorotherperishable food;plasticpackagingmaterialsforthesesameperishablesandforbeautyandhouseholdproducts;woodpackagingmaterialsfor transportation (palettes)or cooperage;metalpackagingmaterials fordrinksorbeautyproducts;paper and cardboard packaging materials for multipurpose uses, ranging from fruit and vegetablecontainers to cement bags for construction or to storage boxes for household appliances.Paper/cardboardandplasticdominateinbothsalesvolumeandsalesvalue.PackagingmerchantsinFrance,mostofwhicharealsoconditionersofferingcustompackagingsolutions,areessentiallypositionedtosellasingletypeofproduct:storageandtransportationpackagingmaterialsmade frompaperorpaperboard (Papyrus, Inapa,KappaCartonFrance),glasscontainers (OIsalesanddistribution France), or paperboard/plastic packaging materials for the food industry (VG Emballage,HyperEmbal,Soretrac,Rescaset,Ovocom...). Incontrasttothesespecialists,amongthetop10,onlythreecompaniesAntalis,CenpacandRajaaregeneralists.ItisnoteworthythatunlikeAntalis,whichisadiversifiedretailer,Cenpac1andRajaareeretailers2andareemergingasincreasinglyseriouscompetitorsonthismarket.Theireconomicmodelassociatesonlinedistancesellingwithanaggressivepricingpolicy.InFranceasinEurope,thisisanatomisticmarket.ThroughoutEurope,keyindustryplayerswithannualsales of over 50million Euros (Antalis, Cenpac, Raja, Papyrus, Inapa,OI Sales andDistribution)worktogetherwithbothmediumsizedcompaniesgeneratingannualsalesrangingfrom30to50millionEuros(VGPackaging,KarpaCarton France,HyperEmbal, Soretrac,Rescaset)and familyowned specialistsofmodestsize,with10to20millionEurosinannualsales(FidelH,Ovocom...).Duetotheatomisticnatureofthemarket,andbecauseofstricterpurchasingpoliciesthatproducersimplementedinordertocopewith the gloomy economic climate, price pressureswere expected to intensify. Sales growth throughpricemarkupsseemedunlikely,and inmostEuropeanmarkets, itwas feared thatbyeretailerswouldprovokepricewars.90%to95%ofdistributorsactivitiesoccurontheirdomesticmarkets.ThestructureoftheFrenchmarketis identical to thatofmanyotherEuropeanmarkets.After threeyearsof continuousgrowth, salesofpackagingmerchantsontheFrenchmarketregressedslightlyby0.7%in2008,buttheirsalesmarginratehasremainedsteadyoverthepastfiveyearsandwassuperiorto22.5%in2008.

    Figure15:SalesofFrenchPackagingMerchants

    AttractedtothehighermarginsbutatthesametimeconfrontedwiththeatomisticnatureoftheFrenchpackagingmarket(withalargenumberofactorsinvolved),Antalisadoptedanacquisitionpolicyin2007.InJanuary,itboughttheindustrialpackagingbusinessofVersel(4millionEurosgeneratedforAntalisinsales in 2008), which was focused mainly on paperboard packaging. In April of the same year, it1CenpacisthedistributionsubsidiaryofanintegratedanddiversifiedgroupinthewoodbusinessfromtheGascogneregioninFrance;itssalesmodelissimilartothatoferetailers.2Specialistsindistanceselling.

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    integrated87newemployeesintotheAntalisgroupwiththeacquisitionofPaxor.PaxorsoldpaperboardboxesandplasticstretchfilmtoindustrialcustomersandwaslocatedintheNordPasdeCalaisregionofFrance.Itgeneratedsalesof28.5millionEurosforaprofitmarginof21.6%andanetprofitof712,500.In 2008, the Paxor brand was renamed Antalis Packaging; this rebranding aimed to bolster Antalisvisibilityinthepackagingmarket.III. TheMergerwithMAP:StrengthinUnity

    Inthepressreleaseannouncingthemerger,PierreD.mentionedthatthisunionwouldallowAntalistoreinforce its leading position in all of its Europeanmarkets, necessary for its future growth and forservingitsclientsefficiently.Headded:thecreationofthisnewlycombinedgroupisamajoreventintheindustry,whichcontinuestoconsolidate.ForAntalis,itisanessentialstepinitsdevelopment.In2007,MAPsold1,432milliontonsofpaper;bothcoatedofficepaperandoffsetpaper,for1.4billionEuros in sales. The company was well established in the Scandinavian countries (Denmark, Finland,NorwayandSweden),intheBalticStates,inEasternEuropeandRussia.Itemployed2,414collaborators,approximatelyhalfofwhomconstituteditssalesforce.Ithadstrongtieswithadiversifiedclientportfolioof 50,000 loyal firms, including book, newspaper and publicity printing companies, distributors andcorporations. MAP has also an efficient purchasing department that successfully diversified itsprocurementrisks(morethan100supplyplantswithacoregroupof10keysuppliers).Thisdiversificationis interestingas, intheory,MAPwasMReals integrateddistributor,andyetMRealonlyaccountedfor35%ofitsprocurementactivitiesin2006.LikewithArjowigginsandAntalis,itappearsthattheproduceranddistributorsubsidiarieswerenotfullyintegrated.Moreover,aswithitsprocurementoperations,MAPslogisticsorganizationhadalreadyprovenitsworth:its distribution network consisted of 23 companies and 74 warehouses in 25 countries. SoundmanagementofthelogisticschaincouldbeseeninthedecreaseofMAPsinventoryandtransportcostsofover133pertonin2004to112pertonin2006,andininventoryturnover,whichimprovedfrom28to27daysoverthesameperiod.Theseresultsareparticularlynoteworthybecause inthis industry,onaverage, logistics account for almost 50%of costs incurred. Finally,MAPwas also a financially stablecompanywithprofitabilitythathadimprovedoverthepast5years(EBITjumpedfrom0.25%in2002to2.5%in2006)andwithcashflowsthathadremainedpositive(cf.Appendix3)duringthissameperiod.

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    Figure16:PaperDistributorMarketin2007(in000tons)

    In2007,Antalis acquired100%ofMAPs shares and its salesof1.25billionEuros (adjusted after thedivestmentofitsBritishsubsidiary,PremierPaperLtd,asstipulatedbytheEuropeanCommission)for382millionEuros.WhilethisacquisitioncausedAntalisdebttoballoonfrom380millionEurosin2006to771million Euros the following year, the financial ratios of this new entity appeared reasonable andamounted to: EV/Sales3 = 0,26or to EV/EBITDA =8.3 if theprocurement agreementnegotiatedwithMRealatthetimeoftheacquisitionisconsidered.

    With theMAPacquisition,Antalisdoubled itsmarket share. Indeed,AntalisandMAPwereextremelycomplementarygeographically:marketleaderin8countriespriortothemerger,Antalisbecameleaderin15countriesafter themergerandextended itscoverage to30Europeancountries (cf.Appendix4). Inviewof the risksofmonopoly, theEuropeanCommissionsapprovalof themergerwas contingentonAntalisdivestitureofoneofMAPsthreesubsidiariesintheUnitedKingdom.Followingthedivestment,however,AntalisworkedhardtosucceedincompletelyintegratingMAPsUKoperations.3EconomicValue(EV)=marketcap+debt+minorityinterest+preferredsharestotalcashcashequivalents.

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    Figure18:BreakdownofAntalisSales

    Considering the merger, financial analysts forecasted Antalis 2008 sales to grow by 44%, as can bebrokendowninthefollowingmanner:41.5% representing scope effects and resulting directly from the annual consolidation ofMAPs

    accounts.Saleslossfromconsolidationwasexpectedtobeminimal.Furthermore,thankstothenewentitysn1rankinginEuropeandtothefactthatMAPandAntalisoperatedindifferentcountries,therewaslittleoverlapintheproductoffering.

    2.5%representingactualsalesgrowth,basedonthepredictionofincreasesincorporateadvertisingandcommunicationbudgetsonwhichthepaperdistributionmarketisdirectlydependent.In2007,analystsforecastedgrowthintheEuropeanadvertisingmarkettobe2.7%fornewspapersand3.7%formagazines,agrowththatshould logicallyhaveboostedAntalisperformanceYettheanalystswereoptimisticanddidnotforeseethecollapseindemandforpaperproductsin2008.

    AlthoughAntalissalesdidnotgrowashadbeenforecasted,themergerwithMAPneverthelessequippedAntaliswithnewoptionstocopewiththeunfavorablemarketforces.Purchasingandlogisticsweretwopotential businesseswhere significant synergies could be created: in 2008 and 2009, these synergiesprovedtobesubstantialindeed(cf.Appendix6).

    Figure19:EvolutionofAntalisSales20052008

    Coupledwithastrictcostreductionprogram,thesynergiesgeneratedagainof34millionEurosin2008.Thiswascertainlyencouraging,especiallysinceoperations inonlysevencountrieshadbeen integratedand those in the remaining six countries were yet to follow suit. The savings stemmed from the

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    optimizationofpurchasingandcommercialoperationsandofthelogisticschainandinformationsystems.Duringthefirstsemesterin2009,gainsontheseoperationsconstantlyyieldedrespectableoutcomes:

    7millionEurosofsynergiescreatedbytheoptimizationoflogisticsandbackofficeoperationsintheUnitedKingdom,Spain,CzechRepublic,PolandandRomania.

    21millionEurosincostsavingsunderpinnedThe finalphasesofMAPs integration in2009,and the followthroughof the cost reductionprogram,enabled Antalis to generate 19 million Euros in cost savings during the last semester. The companysucceededinrationalizingcostsandimprovingmargins(15millionEurosin2008and10millionEurosin2009),notablybyoptimizingitscoverageofthePrint,OfficeandVisualCommunicationbusinesses;thiswasachievedthroughasimultaneousredesigningofproductportfoliosandtheimplementationofapushstrategy for packaging and Visual Communication products in the former MAP companies. In adeterioratingeconomic context, then, thismergerendowedAntaliswithparticularlypowerful tools tocopewithmarketevolutions(cf.Appendix6).ThismergeralsoenabledAntalis toposition itselfonhighgrowthmarketssuchasEasternEuropeandRussia,andatthesametime,toextenditsambitionstotheGermanmarketwhereitiscurrentlyrankedbutfifth.Henceforth,withdistributionplatformsinallborderingcountries,Antaliscanmoreeasilyinitiateasustainedmarketattack;yetwouldthisbeastrategicmove?Finally, it is important tonote that in2007, several keyMAPexecutives joined thenewentity ledbyPierreD.Thatboth topmanagement teams,asmuchatAntalisasatMAP,desired theclearingofthismergerpartlyexplains thegeneralsuccessof the integrationprocess.Amergerof thismagnitudewasunprecedentedforAntalisandforthepaperdistributionindustryforthatmatterandchancesarethatitwillremainso.

    ListofAppendices

    Appendix1:AntalisFinancialContributionbyGeographicZonesSegments2008Appendix2:FrenchPaperDistributionMarketin2007Appendix3:KeyMAPRatiosAppendix4:Antalis:LeaderontheEuropeanMarket20062008Appendix5:MarketShareofMainPaperDistributorsinEuropein2006Appendix6:

    EvolutionofCurrentOperatingIncome(COI)20072008EvolutionofCurrentOperatingIncome(COI)FirstSemester20082009

    Appendix7:Top7EuropeanPaperGroupsIntegration/DiversificationGraphicPaperDivisionofMainProducersinEurope

    Appendix8:KeyFiguresforSequana20042009KeyFiguresforAntalis20042009

    Appendix9:KeyFiguresforAntalisinEurope20042009KeyFiguresforAntalisoutsideEurope20042009(Asia,SouthAmerica,SouthAfrica)

    Appendix10:PaperlinX:FinancialResults20082009Papyrus:ConsolidatedIncomeStatement20072009Inapa:FinancialResults20062009

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    Appendix1:AntalisFinancialContributionbyGeographicZonesSegments2008

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    Appendix2

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    Appendix3

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    Appendix4

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    Appendix5

    MarketShareofMainPaperDistributorsinEuropein2006

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    Appendix6

    EvolutionofCurrentOperatingIncome(COI)20072008

    Indicators AmountinMillionofEurosCOI2007 92Exchangerateeffects 4Effectsofinflationoncosts 25Volumeeffects 20SalesdilutionmergerwithMAP 9SynergiesmergerwithMAP 23Improvementonmargin 15Decreaseinstructuralcosts 20COI2008 92

    EvolutionofCurrentOperatingIncome(COI)FirstSemester20082009

    Indicators AmountinMillionofEurosCOI2008(1stsemester) 52Exchangerateeffects 2Effectsofinflationoncosts 6Volumeeffects 3SalesdilutionmergerwithMAP 40SynergiesmergerwithMAP 7Improvementonmargin 10Decreaseinstructuralcosts 21COI2009(1stsemester) 39

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    Appendix7

    Top7EuropeanPaperGroupsIntegration/Diversification

    GraphicPaperDivisionofMainProducersinEurope

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    Appendix8

    Source:SequanaAnnualreports

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    Appendix9

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    Appendix10

    PaperlinX:FinancialResults20082009

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