Chronicles of a Deal Gone Sour

Heidelberg opens up to ME Printer about the defunct Gallus benpac deal

History of Heidelberg is entwined with the development and flourishing of printing industry across the world. Today roughly 400,000 Heidelberg presses are running in 240,000 printing companies spanning the globe. This is almost 40% of all the total offset sheetfed press market in the world. Heidelberg introduced many innovations to the world of graphic arts. In 1914 The “Heidelberg Platen” gave a new standard to printing by producing 1,000 sheets per hour. In 1962 Heidelberg launched its first offset press, a technology which is still widely used across the world and I can go on and on. However, the world moved on and a slew of modern printing technologies popped up here and there. Packaging became more important and Heidelberg also tried to grab a piece of action, including label printing. So it decided to take over Gallus. Gallus Holding AG, based in St. Gallen, Switzerland, is an international manufacturer of label printing and folding carton presses. Since 2014, Gallus is a complete subsidiary of Heidelberger Druckmaschinen AG, a process that started few years earlier.

Fast Forward to 2021, the whole world is grappling with Coronavirus and the demand for printed product is considerably down. As the biggest press manufacturer in the world Heidelberg feels the pinch harder than the other press manufacturers. The company which had already started divesting from its non-core businesses looks for buyers to sell Gallus. And benpac shows up with a lucrative offer of 120 million US dollars and cash strap Heidelberg jumps on to the opportunity without perhaps proper vetting of benpac.

When the news about Gallus benpac deal broke out I checked the benpac website and couldn’t realize what sort of company it is and I still can’t. There is not much information about this company. Now the question is how come Heidelberg decided to deal with a company with shady financial records? In a statement to ME Printer Heidelberg said and I quote,” The Management Board and the M&A team involved on the Heidelberg side carefully managed the entire sales process, including in accordance with customary standards and with the support of renowned consultants. Heidelberg checked the solvency of the buyer.  Incidentally, renowned international advisors were also on board on the benpac holding ag side. The closing was not completed for reasons beyond Heidelberg’s control.
We had to assume until the very end that the transaction would be completed successfully. However, the buyer has now failed to meet its contractual obligations and has not transferred the purchase price.”

Meanwhile you cannot find much information about benpac.  Bote, a regional Swiss newspaper in December, reported that two benpac directors, and the group’s auditors, had stepped down. Former Heidelberg chief technology officer Stephan Plenz was one of the directors who resigned.

Is Gallus still up for sale?

According to Heidelberg after the failure of the deal Gallus will remain with Heidelberg and nothing will change for Gallus customers. The existing supply and service contracts will continue to apply unchanged, and the personal contacts will remain the same. However, Heidelberg also told ME Printer that, as part of its more independent setup, Gallus has taken central functions back into its own hands.

“Gallus made good progress operationally last year in its new, independent setup under the Heidelberg umbrella. Gallus will continue along this successful path and Gallus must and will continue to develop independently.” says Heidelberg.

So while Gallus is still part of Heidelberg, it is an independent company. I am not sure I understand 100% this concept. But that is how things stand at the moment.

Another important question is what all this means for Gallus customers?” Gallus will remain with Heidelberg and nothing will change for Gallus customers. The existing supply and service contracts will continue to apply unchanged, and the personal contacts will remain the same. This will also apply for the customers in the Middle East.  Gallus will remain a high-performance, reliable partner for its customers in the future. Gallus has successfully focused on the needs of its customers in the flexographic printing market – and has continued to develop its product and service portfolio in a concentrated manner. On March 3 and 4, 2021, Gallus will present its new, innovative offerings to customers at its first High Performance Days. Customers in the Middle East are highly welcome to join this online event.” Assures Heidelberg.

There is no doubt the failure of this deal has created a hole in Heidelberg finances and it will be challenging to fill the hole. On the other hand, failing of the deal impacted negatively Heidelberg’s share prices. However, apparently Heidelberg is optimistic. The company says,” For one thing: We have already successfully implemented various M&A transactions as part of our program of measures – and in some cases much faster than expected. Others are in the pipeline.
The Management Board stands for a far-sighted, consistent and successful transformation program, with which Heidelberg has considerably stabilized itself financially in the current Covid crisis, realigned itself operationally and is well on the way to setting itself up for sustainable profitability. Now Gallus will remain with Heidelberg and we will systematically continue on our path of transformation.
The share price has recovered significantly over the past 3 months, and our strategic measures are taking effect. Confidence in Heidelberg is basically on the rise.”

Everything is for sale

On February 2 Heidelberg announced that it is also selling the Iconic Print Media Academy. Heidelberg says that optimizing locations and structures is a key lever in stabilizing company’s finances and focusing on Heidelberg’s profitable core business. This also includes divesting vacated sites and buildings such as the PMA. As part of company’s planned site and structural optimization measures the selling of the Print Media Academy was planned very long before and has nothing to do with Gallus. Nevertheless, you might think now that Gallus benpac deal is in tatters Heidelberg is accelerating its planned selling of company’s assets including parts of Wiesloch/ Waldorf site.

To me it seems that Heidelberg does not see a promising future growth for print anymore, so it is trying to diversify into other industrial areas. “We will continue to systematically implement our strategic agenda and transformation. This is built on three pillars: Financial stability, strong core business and new growth.
Financial stability means reduction of net debt and costs as well as increased profitability. We will focus on our strong core business with recurring revenues – print site contracts and lifecycle solutions, with Packaging and with the further growth in China. New growth will come from E-mobility, Zaikio and Printed Electronics.” Comments Heidelberg.

But for more than 170 years Heidelberg was an inseparable part of ink and paper industry and identity of the printed word, an identity that enriches our lives. Heidelberg can get its feet wet at different industries but it always returns to its roots one way or the other.