Anger levels in the print industry are at an all time high as printers face the possibility that Geon may be resurrected, without any of its debts, in what appears to be a classic Phoenix play.
In a tactical move that has shocked the industry, Geon's owners of 10 days, KKR and Allegro, put the company into receivership late on Wednesday, then immediately made a bid for the business through its KKRM vehicle.
Despite their move, KKRM is not guaranteed Geon; the receiver is legally obliged to consider all bids. The receiver was unavailable for comment on Monday but Australian Printer understands that there has been more than one bid.
Unless any new purchaser of Geon pays more than $85m – which is not likely - creditors are likely to see zip of their debts, as KKR will have first dibs on any money under that amount.
The move by KKR effectively shovels Geon’s debt onto its suppliers, who include dozens, possibly hundreds, of smaller printers, as well as paper merchants, consumables suppliers and equipment suppliers, and for KKR translates its $80m debt into equity.
KKR is a past master at financial engineering. It made its name with Wall Street’s biggest leveraged buyout (LBO) in the heady years of the 1980s with its hostile takeover of US tobacco and biscuit giant RJR Nabisco in 1988 for US$31bn, using RJR’s own assets and cash flow as the main finance, a move which shocked the banking world at the time but has since become a standard tool amongst the suits, with everyone from Hertz Rent a Car, Toys ‘R’ Us, film studio MGM, and the world’s richest soccer club Manchester United subject to the LBO.
KKR’s LBO of RJR Nabisco became the subject of a book and film The Barbarians at the Gate: The Fall of RJR Nabisco.
Many printers already blame Geon for forcing sheetfed pricing to the floor because of its need to keep its phalanx of long perfectors in operation and at least some cash coming in. Now, the prospect of Geon competing minus its debt has sent the blood of printers boiling.
If KKR's plan succeeds, printers will be facing not only the country's biggest sheetfed printer operating on a debt-free basis but also as dozens, possibly hundreds, of printers and trade suppliers are Geon creditors - the company farmed out a fair amount of work - they will be looking at serious cash flow issues as they try and absorb the Geon debt.
All printers are already likely to face increased paper costs as the premiums for the insurance that merchants buy will skyrocket, as Geon's paper debts, which are as yet undisclosed, are likely to be massive.
Graham Morgan, CEO of Geon, was unavailable for comment.
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