UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 1)
Under the Securities Exchange Act of 1934
R.R. DONNELLEY & SONS COMPANY
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(Name of Issuer)
Common Stock, par value $1.25 per share
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(Title of Class of Securities)
257867101
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(CUSIP Number)
with a copy to:
Alexander J. Roepers Allen B. Levithan
Atlantic Investment Management, Inc. LOWENSTEIN SANDLER PC
666 Fifth Avenue 65 Livingston Avenue
New York, New York 10103 Roseland, New Jersey 07068
(212) 484-5050 (973) 597-2500
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
August 17, 2006
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule l3G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), (f) or (g), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule l3d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
CUSIP NO. 257867101
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1) Names of Reporting Persons. I.R.S. Identification Nos. of Above Persons
(entities only):
Atlantic Investment Management, Inc.
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2) Check the Appropriate Box if a Member of a Group (See Instructions):
(a) (b)
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3) SEC Use Only
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4) Source of Funds (See Instructions): AF, OO
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5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e):
Not Applicable
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6) Citizenship or Place of Organization: Delaware
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Number of 7) Sole Voting Power: 10,837,200*
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Shares Beneficially 8) Shared Voting Power: 0
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Owned by
Each Reporting 9) Sole Dispositive Power: 10,837,200*
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Person With: 10) Shared Dispositive Power: 0
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11) Aggregate Amount Beneficially Owned by Each Reporting Person:
10,837,200*
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12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
Not Applicable
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13) Percent of Class Represented by Amount in Row (11): 5.0%*
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14) Type of Reporting Person (See Instructions): IA
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* Includes: (i) 4,583,160 shares (2.1%) of the Issuer's Common Stock, par value
$1.25 per share (the "Shares"), beneficially owned by AJR International Master
Fund, Ltd., a British Virgin Islands company, (ii) 5,446,340 Shares (2.5%)
beneficially owned by Cambrian Master Fund, Ltd., a British Virgin Islands
company, (iii) 796,300 Shares (0.4%) held in several Managed Accounts (the
"Managed Accounts"), and (iv) 6,500 Shares (0.003%) beneficially owned by
Atlantic Investment Management, Inc.'s 401k/Profit Sharing Plan. In addition,
the sole shareholder of Atlantic Investment Management, Inc. (the "Reporting
Person"), Mr. Alexander J. Roepers, may be deemed to beneficially own 4,900
Shares (0.002%). The Reporting Person, serving as the investment advisor of the
foregoing parties and the Managed Accounts, has sole voting and sole dispositive
power over all Shares beneficially owned by such parties or held in the Managed
Accounts. See Items 2 and 5 for additional details.
Item 2. Identity and Background.
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Item 2 is hereby restated in its entirety as follows:
(a) This statement is filed by Atlantic Investment Management, Inc., a
Delaware corporation (the "Reporting Person"), with respect to 10,837,200 Shares
over which the Reporting Person has sole dispositive and sole voting power by
reason of serving as the investment advisor to: (i) AJR International Master
Fund, Ltd., a British Virgin Islands company ("AJR"); (ii) Cambrian Master Fund,
Ltd., a British Virgin Islands company ("Cambrian Fund"); (iii) several managed
accounts (the "Managed Accounts"); (iv) the Reporting Person's 401k/Profit
Sharing Plan (the "Plan"); and (v) Alexander J. Roepers, the president and sole
shareholder of the Reporting Person.
(b) The business address of the Reporting Person and Mr. Roepers is
666 Fifth Avenue, New York, New York 10103.
(c) The principal business of the Reporting Person is that of an
investment advisor engaging in the purchase and sale of securities for
investment with the objective of capital appreciation on behalf of AJR, Cambrian
Fund, the Managed Accounts, the Plan and Mr. Roepers. The principal occupation
of Mr. Roepers is serving as the president and managing officer of the Reporting
Person.
(d) Neither the Reporting Person nor Mr. Roepers has, during the past
five (5) years, been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) Neither the Reporting Person nor Mr. Roepers has, during the past
five (5) years, been a party to any civil proceeding commenced before a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is now subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
(f) Mr. Roepers is a citizen of The Netherlands.
Item 3. Source and Amount of Funds or Other Consideration.
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Item 3 is hereby restated in its entirety as follows:
The Shares purchased by the Reporting Person on behalf of AJR,
Cambrian Fund, the Managed Accounts and the Plan were purchased with the
investment capital of such entities and accounts. The Shares that may be deemed
to be beneficially owned by Mr. Roepers individually were purchased with the
personal funds of Mr. Roepers or members of Mr. Roepers' immediate family. The
aggregate amount of funds used in making the purchases reported on this Schedule
13D Amendment No. 1 was $4,133,368.
Item 4. Purpose of Transaction.
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Item 4 is hereby restated in its entirety as follows:
The Reporting Person acquired, on behalf of AJR, Cambrian Fund, the
Managed Accounts, the Plan and Mr. Roepers (including immediate family members
of Mr. Roepers), and continues to hold, the Shares reported in this Schedule 13D
for investment purposes. The Reporting Person intends to evaluate the
performance of the Shares as an investment in the ordinary course of business.
The Reporting Person pursues an investment objective that seeks capital
appreciation. In pursuing this investment objective, the Reporting Person
analyzes the operations, capital structure and markets of companies in which the
Reporting Person's clients invest, including the Issuer, on a continuous basis
through analysis of documentation and discussions with knowledgeable industry
and market observers and with representatives of such companies.
The Reporting Person will continuously assess the Issuer's business,
financial condition, results of operations and prospects, general economic
conditions, the securities markets in general and those for the Shares in
particular, other developments and other investment opportunities. Depending on
such assessments, the Reporting Person may acquire additional Shares or may
determine to sell or otherwise dispose of all or some of the Shares presently
held by AJR, Cambrian Fund, the Managed Accounts, the Plan and Mr. Roepers
(including immediate family members of Mr. Roepers) in the open market or in
private transactions. Such actions will depend upon a variety of factors,
including, without limitation, current and anticipated future trading prices for
the Shares, the financial condition, results of operations and prospects of the
Issuer, alternative investment opportunities, general economic, financial market
and industry conditions and other factors that the Reporting Person may deem
material to its investment decision.
The Reporting Person will continue its active discussions with the
Issuer's management with respect to actions which might be taken by the
management of the Issuer to maximize shareholder value of the Issuer. Attached
is a letter dated August 17, 2006 to the Chairman of the Issuer, outlining the
Reporting Person's proposal for a $3 billion share repurchase plan as an
alternative to a potential sale of the Issuer to a financial buyers group. In
addition, the Reporting Person may hold discussions with other parties who might
engage in shareholder value enhancing activities for the benefit of all of the
Issuer's shareholders. There can be no assurance that the Reporting Person will
take any of the actions described in the previous sentence.
Except as set forth above, the Reporting Person has no present plans
or proposals which relate to or would result in any of the transactions required
to be described in Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
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Item 5 is hereby restated in its entirety as follows:
(a) Based upon the information contained in the Issuer's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on August
8, 2006, there were issued and outstanding 216,300,000 Shares as of July 31,
2006.
(b) The Reporting Person does not directly own any Shares. The
Reporting Person has entered into an investment advisory agreement with each of
AJR, Cambrian Fund, the Managed Accounts and the Plan pursuant to which the
Reporting Person has investment authority with respect to the securities held by
such entities or in such accounts. Such power includes the power to dispose of
and the power to vote the Shares. By reason of the provisions of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended, the Reporting Person is deemed
to be the beneficial owner of the Shares held by such entities and accounts. In
addition, the Reporting Person has sole dispositive and voting power over the
4,900 Shares that may be deemed to be beneficially owned by Mr. Roepers.
Accordingly, the Reporting Person is deemed the beneficial owner of 10,837,200
Shares, or 5.0% of the outstanding Shares.
(c) The following table details the transactions by the Reporting
Person, on behalf of AJR, Cambrian Fund, the Managed Accounts and the Plan, in
Shares, as well as transactions in Shares that may be deemed to be beneficially
owned by Mr. Roepers, during the past sixty (60) days:
Date Quantity Price Type of Transaction
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6/30/2006 20,000 $31.9543 Open Market Purchase
7/26/2006 50,000 $29.5036 Open Market Purchase
7/27/2006 29,900 $28.6461 Open Market Purchase
7/31/2006 40,000 $29.0646 Open Market Purchase
8/7/2006 82,200 $32.1225 Open Market Sale
8/8/2006 252,000 $32.9338 Open Market Sale
8/9/2006 200,000 $33.1162 Open Market Sale
8/14/2006 80,000 $33.6191 Open Market Sale
Except for the transactions listed above, neither the Reporting
Person, any entity for which the Reporting Person serves as investment advisor,
nor any person or entity controlled by the Reporting Person, nor Mr. Roepers
(including Mr. Roepers' immediate family members) has traded Shares during the
past sixty (60) days.
Item 7. Material to be filed as exhibits.
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See Exhibit A attached hereto.
SIGNATURE
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After reasonable inquiry and to the best of the undersigned's
knowledge and belief, the undersigned hereby certifies that the information set
forth in this statement is true, complete and correct.
August 17, 2006
ATLANTIC INVESTMENT MANAGEMENT, INC.
By: /s/ Alexander J. Roepers
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Alexander J. Roepers, President
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE
FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001).
Exhibit A
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By Fax and FedEx
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August 17, 2006
Mr. Stephen M. Wolf
Chairman
R.R. Donnelley & Sons Company
111 South Wacker Drive
Chicago, Illinois 60606
Dear Mr. Wolf:
As you may know, we are one of R.R. Donnelley's (RRD) largest shareholders with
over 10.8 million shares and, as such, we share a keen interest with you and
RRD's Board of Directors to maximize RRD's shareholder value over the long term.
In light of recent news reports indicating that a bid by one or more private
equity groups may be forthcoming, I am writing you to underscore the importance
of our December 2005 proposal (please see our 13D filing of January 27, 2006 for
details) to engage in a large share repurchase program. Such a program would
leverage the value of RRD to the company's current shareholders.
To us, the sell-side suggested potential takeover price (mostly ranging from $36
to $40 per share) would be unacceptable, given that you would be handing over
the majority of the potential appreciation for RRD's shareholders to a financial
buyers group. You have a fiduciary responsibility to all current RRD
shareholders to evaluate all avenues for long term shareholder value
enhancement. I am sure that this is your and CEO Mark Angelson's focus and
intent as well. However, the potential of one or more (presumably) unsolicited
bids has accelerated the need for bold and immediate action.
Therefore, we hereby revise our proposal from December 2005, which called for a
$1 billion share buy back. We now urge the Board of Directors to consider a $3
billion share buy back plan, which should be implemented as promptly and
cost-effectively as possible. The $3 billion share buy back represents about
half the senior debt that a financial buyers group would put on the RRD
businesses (we assumed a $40 per share deal with 25% equity, 50% senior debt and
25% high yield debt).
Excessive concern over the reaction of debt rating agencies (about which the
potential financial buyers of RRD will not be concerned) and maintaining nearly
unlimited financial flexibility to make acquisitions will now have to be
considered secondary to the importance of doing what is right for all current
shareholders of RRD.
Page Two
Letter to Mr. Stephen M. Wolf
August 17, 2006
We urge you to protect current shareholders from losing most of the upside in
their RRD investment to a newly interested financial buyers group, particularly
those shareholders who have been patient for the past several years, waiting for
an adequate return on their investment. The $3.0 billion buy back plan we are
suggesting would retire about 87 million RRD shares (or about 40% of current
shares outstanding) and increase EPS in 2007 by an incremental 27% to $3.45.
Please see the attachment for details.
At the midpoint of a previously achieved, and well-deserved, P/E multiple in a
range of 12-15x, RRD shares might trade above $46 per share in the next year. In
addition, we believe that the post buy back level of debt will still allow the
company to maintain solid credit ratings and have sufficient financial
flexibility for accretive add-on acquisitions.
I trust that you and the Board of Directors will make the right decision for
shareholders at this crucial juncture in RRD's history.
Sincerely,
/s/ Alexander J. Roepers
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Alexander J. Roepers
President
cc.: Mark Angelson, Chief Executive Officer of RRD
Attachment
Attachment
Letter to Mr. Stephen M. Wolf
August 17, 2006
R.R. Donnelley & Sons Company
Proposed $3 Billion Share Repurchase Plan
Accretion Analysis
(in millions, except per share data)
EPS Impact
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Number of Shares Repurchased 87.3
Share price as of 8/16/2006 $34.36
Total Cost $3,000.0
7.0% Interest on Cost of Funds $210.0
Estimated 2007 Net Income (1) $591.0
Less After Tax (34.5% Rate) Cost of Added Interest Expense $137.6
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Pro Forma Net Income $453.5
2Q-06 Average Diluted Shares Outstanding 218.9
Less Repurchased Shares 87.3
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Pro Forma Shares Outstanding 131.6
Pro Forma EPS $3.45
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Accretion Over Estimated 2007 EPS of $2.70 (2) $0.75
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% Accretion 27.6%
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After Tax Cash Cost
After Tax Incremental Interest Expense $137.6
Less Dividends Saved on Repurchased Shares (3) $90.8
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Total After Tax Cash Cost $46.7
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(1) Consensus 2007 EPS estimate as reported by IBES multipled by diluted
shares outstanding.
(2) Consensus 2007 EPS estimate as reported by IBES.
(3) Based on current quarterly dividend payment of $0.26 per share
annualized.
8/17/2006
Atlantic Investment Mangement, Inc.
666 Fifth Avenue, 34th Floor
New York, New York 10103