The day shift on Wednesday was nearing an end when Merrill Corp., a financial printing company in St. Paul, Minn., got the call. A local company, about to embark on a hostile takeover, was making a fast tender offer, and it wanted Merrill to print the necessary financial documents by Thursday morning. The capital required for the buyout was more than $52 million; if word of the deal leaked, the target company's stock would probably soar. Time, quite literally, meant money.
Complex work on adrenaline-pumping deadlines is part of an ordinary day at Merrill, as at any printing company that specializes in financial work. The daily vicissitudes of stock prices and interest rates force these printers to be on call around the clock, ready to produce proxy materials, prospectuses, reports, and all the other documents required for the big-money machinations of high finance.
For Merrill, however, this was no ordinary job. The company launching the takeover had retained a large Wall Street law firm that specialized in unfriendly acquisitions, and proofs of the documents had to be sent that night to the attorneys in New York City. The buying company, in Minnesota, was familiar with Merrill. But the New York attorneys, accustomed to working with the Manhattan financial printing establishment, were dubious about trusting this risky venture to an obscure newcomer, and Merrill's branch office in lower Manhattan had opened a scant two weeks before. To soften its resistance, Merrill had promised the law firm the same speed, accuracy, and service it could expect from its usual suppliers, big New York City-based printers, but for a more attractive price.
That, as it turned out, was persuasive enough. When the go-ahead call finally came, Merrill typeset the proofs at its headquarters in St. Paul and transmitted them Wednesday night to its newly opened New York branch office. Twenty-four hours later, it provided finished documents to all parties involved in the transaction. By early Friday, compliance materials were on their way to the Securities and Exchange Commission for final approval.
"We've got a system so lean, it allowed us to set up shop in New York and become operational in less than 15 days," says Bob Nienhouse, president of Merrill's fledgling New York branch in the heart of the city's financial-printing district. "We got that big merger job in our first week here, and it sent shock waves through the New York financial community." His competitors, he adds, are "a clubby, old-boy's network with attitudes long out of date.We took 'em by surprise."
Five old-line companies dominate the national financial printing market, a $600-million industry in 1983. The archetype of the old guard is probably Bowne & Co. Founded in 1775, Bowne has more Fortune 500 companies as customers than any other financial printer, and was the industry's number one company in sales for years. It recently dropped to number two, though, and it continues to fall. To a visitor, the contrast between Bowne's operation and Merrill's is striking. Like the rest of the major New York printers, Bowne employs a large, heavily unionized work force. Because Bowne's union contracts stipulate retraining from hot-metal Linotype operations to electronic phototypsetting -- a process just now underway there -- longtime compositors must be taught how to run computerized equipment.Walking through his company's production room in New York, Bowne's president, Franz von Ziegesar, points to a row of middle-aged men with broad, callused hands, awkwardly pecking on new computer keyboards.
At Merrill's headquarters, president John Castro conducts a similar inspection of the company's main typesetting facilities. There, amid hanging ferns, art prints, and cat calendars, stylishly dressed computer operators type on quiet, clean equipment. Merrill's work force is completely nonunion; the average age is 30. Castro, 36, a large, amiable man of Italian descent, took over the then-13-year-old regional printing company in 1981. He recognized that the financial printing business was becoming more national as once-regional underwriters and law firms were becoming more mobile. And he knew that many of the heavily unionized, established companies, with their "clubby" cliques of underwriters, attorneys, and accountants, had been slow to expand and modernize. In those trends he saw the beginnings of an opportunity for Merrill.
Castro had his eye on New York, which accounts for 40% of the entire industry. If he could break in there, he reasoned, he could get in anywhere.The strategy he came up with had two parts. Half the solution was technological: a typesetting network that uses high-speed digital and facsimile transmission lines to link the company's computerized production facilities in St. Paul, where the typesetting is done, to its seven branch offices. (Castro expects to open a new branch every four months for the next two years.) The offices serve as marketing and distribution centers, while a local independent printer, dubbed the "partner printer," is contracted to produce the finished material.
Printing has always been one of the largest single expenses in such deals as stock offerings, with costs sometimes reaching the six-figure range and printers arguing that prices must be high to cover the myriad last-minute changes clients demand. Merrill's elegant and efficient system -- a printing company that owns no presses -- challenged such long-held assumptions. "The term 'financial printing' is kind of a misnomer," Castro explains. "Three-quarters of the work performed is typesetting, not printing. How can the others possibly keep up with us?" he asks rhetorically of the larger firms, which are saddled with unionized printing plants.
The other half of Castro's strategy was beating the "buddy system" at its own game by breaking into the Byzantine web of relationships that govern the industry. When moving into a city, one of Merrill's first steps is to raid the local competition and pay whatever it takes to attract experienced sales talent. And it works.
Larry Polans, a 30-year veteran of the financial printing business, carries a mental Rolodex of contacts worth more to an employer than any six rookie salespeople. He joined Merrill last April, when the company lured him away from a major competitor for an enormous salary, and is the company's top salesperson. "He gets a sense of comfort working with me," says Polans, nodding toward his client in Merrill's Manhattan conference room. "I have a reputation. In fact, I'll be perfectly frank with you.He might not be sitting here if I weren't working for Merrill."
The customer, an attorney for a large brokerage firm in New York, agrees. "A crucial thing I look for when picking a printer is someone I can trust and have confidence in," says the attorney, now one of Merrill's biggest clients. It is 7:00 p.m., and he is proofreading changes in the latest draft of a mutual-fund prospectus. He gestures across the huge, gleaming conference table in the direction of Polans, a rumpled, imposing figure. "He's one of the best, and he knows what he's doing. Price is important, sure. But I want to deal with someone who understands my business. Larry and I have been friends for 20 years."
Back in St. Paul, Castro reflects on his company's rapid growth in an industry that not long ago was wedded to nineteenth-century technology. Merrill's New York operation has already secured business from such major purchasers of financial documents as Merrill Lynch, Pierce, Fenner & Smith Inc. and Dean Witter Reynolds Inc., and consolidated sales for the company are roughly $24 million for the year ending January 31, almost double the company's annual sales for last year. "Our people aren't afraid of change," Castro says, walking through his plant while computer operators type away. "They relish it." Then he abruptly stops as if struck by a great thought. "Maybe I should pipe recordings of printing presses through the office's sound system," he deadpans, "just to make customers feel more secure."