Manroland, Heidelberg End Talks of Merger, Says German Daily

By: Jim Rosenberg The first day of IFRA didn't end before the reported manroland-Heidelberger merger talks did.

German business daily Handelsblatt reported Monday that negotiations to join the two printing-equipment giants had been called off after Heidelberg stock plunged on the Frankfurt exchange when the company predicted larger-than-expected losses. Following the Heidelberg estimate and the Handelsblatt report, the company?s shares fell to 5.80 euros, or 21%, the most since March of 1998, according to Bloomberg.

Heidelberg announced late last week that its pre-tax loss for the year ending March 31 will be between 110 million and 150 million euros. All the big German press manufacturers have seen losses in the last year.

When the first report of talks surfaced in latte July, Heidelberg saw its stock rise 5%. It was believed that manroland?s majority owner, Allianz Capital Partners -- which also has a 12% stake in Heidelberg -- was behind the possible merger.

Spokespersons at neither company would comment on manroland?s reported suspension of merger talks. At mid-afternoon, no manroland executive at IFRA would comment. But when its Executive Board Chairman Gerd Finkbeiner was asked two hours later, he remarked, ?We are not in the business of rumors,? adding that he was ware of the news report. He said he must respect the fact that such matters are properly the concern of the shareholders.

Finkbeiner further denied the suggestion that ongoing failure to comment could hurt sales, and he noted that the company is adding more than 300 persons to its sales efforts in South America, southern Africa and South Asia.

The same afternoon, Koenig & Bauer AG Deputy President Claus Bolza-Schuenemann worried aloud about a possible ?negative impact? of a manroland-Heidelberg merger, especially were it to benefit from some sort of government support. Taxpayer-subsidized job creation at the merged company would hurt jobs at KBA and other competitors, said Schuenemann.

They weren?t the first such remarks on the subject. KBA earlier voiced concerns about a 300-million-euro German government loan to Heidelberg and the government?s guarantee of most of 550 million euros in Heidleberg financing A manroland executive was quoted expressing similar concern.

Heidelberg defended its position, telling PrintWeek the loan and guarantee were made under ?usual bank conditions,? with market-level fees and interest.

At IFRA, Bolza-Schuenemann said KBA has continued ?downsizing our capacities? and undergoing ?rigorous cost cutting,? has sought no government help, is debt free and enjoys a substantial credit line ?to fall back upon.?

He noted that his company?s situation was helped by conservation of cash and by its reliance on more than just newspaper and commercial printing (for example, security printing). It also has begun moving into other industrial sectors, which Bolza-Schuenemann said should not be taken as an indication that his company is abandoning print.

He said diversification safeguards KBA?s future as ?a second sphere of competence.? Fifty years ago, he observed, 80% of KBA?s business was with newspapers, while the situation today is entirely reversed, with newspapers representing only 20%of its business.