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Wallace Computer Services, Inc.
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(Name of Registrant as Specified In Its Charter)
Moore Corporation Limited
FRDK, Inc.
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MOORE CORPORATION LIMITED
PRESENTATION TO WALLACE SHAREHOLDERS
December 1995
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MOORE CORPORATION LIMITED
TABLE OF CONTENTS
I. EXECUTIVE SUMMARY
II. WALLACE JUNE 7, 1995 STRATEGIC PLAN
III. WALLACE AUGUST 11, 1995 OPERATING PROJECTIONS
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MOORE CORPORATION LIMITED
OVERVIEW
- - Moore Corporation's all cash offer for 100% of the outstanding shares of
Wallace Computer Services, Inc. stands at $60 per share. This offer
corresponds to an enterprise valuation of approximately $1.4 billion.
- - The offer represents a 52% premium to Wallace's average closing share price
for the 30 trading days prior to the offer.
- - Even though 73.5% of Wallace's shares were tendered into Moore's $60 per share
offer, Wallace's Board of Directors continues to call the all cash,
fully-financed offer "inadequate."
- - The Wallace financial projections, upon which the Goldman Sachs' August 11,
1995 and October 17, 1995 "inadequacy" opinions were based, are dramatically
higher than those in Wallace's June 7, 1995 Strategic Plan. Moore and its
advisors question whether these new projections are reasonable and
justifiable.
- - Moore management firmly believes that a combination of Wallace with Moore
would result in a company that is greater than the sum of its parts. To this
end, a significant component of Moore's $60 per share offer reflects value
created through synergies from a combination of Wallace with Moore. For this
reason, Moore strongly believes its acquisition proposal is the most
attractive economic alternative for Wallace shareholders.
- - Since announcing the tender offer on July 31, 1995, Moore has repeatedly
requested to meet with Wallace management in the hopes of concluding a
negotiated transaction. To date, however, Wallace management has refused to
sit down with Moore.
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MOORE CORPORATION LIMITED
WALLACE'S STRATEGIC PLAN
- - Wallace's Strategic Plan, which was presented to the Wallace Board of
Directors on June 7, 1995 (less than two months before Moore Corporation
announced its tender offer), outlined the company's long-term goals and growth
objectives through fiscal year 2000. Key points from the Plan include:
- - Annual sales and pre-tax profit growth objectives of 9%, in the absence of
acquisitions. Acquisitions were projected to add four percentage points (31%
of the total 13%) to sales growth and five percentage points (36% of the
total 14%) to pre-tax profit growth.
<TABLE>
<CAPTION>
WALLACE'S JUNE 7, 1995 STRATEGIC PLAN WITHOUT ACQUISITIONS
(amount in millions)
1995 2000 CAGR
FORECAST PROJECTED(1) 1995-2000
---------- ------------- -----------
<S> <C> <C> <C>
Sales $692.7 $1,065.8 9.0%
Pre-Tax Profit 82.5 127.0 9.0
% of Pre-Tax Profit to Sales 11.9% 11.9%
- Yet to be identified "New Ventures" were forecasted to account for $86.0
million (6.7%) of sales and $13.5 million (8.5%) of pre-tax profit by fiscal
year 2000.
</TABLE>
- ----------------------------------
(1) Derived by growing 1995 forecasts by 9% each year through fiscal year
2000.
-2-
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MOORE CORPORATION LIMITED
WALLACE'S NEW FINANCIAL PROJECTIONS
- - Notwithstanding the fact that Wallace's Strategic Plan was presented to the
company's Board of Directors on June 7, 1995, between July 31, 1995, when
Moore first announced its offer for Wallace, and the August 11, 1995 Wallace
Board of Directors meeting, the Wallace financial projections were
substantially increased on at least two occasions.
<TABLE>
<CAPTION>
WALLACE FINANCIAL PROJECTIONS
(amount in millions)
JUNE 7(1) AUGUST 9(2) AUGUST 11(2)
----------- ------------- --------------
<S> <C> <C> <C>
Fiscal Year 2000 Sales $1,065.8 $1,380.0 $1,420.0
% Increase over June 7 29.5% 33.2%
Fiscal Year 2000 Pre-Tax Profit 127.0 193.6 214.5
% Increase over June 7 52.4% 68.9%
% of Pre-Tax Profit to Sales 11.9% 14.0% 15.1%
</TABLE>
- - The August 11, 1995 projections imply aggressive increases in the sales and
pre-tax profit CAGRs compared to the June 7, 1995 projections.
<TABLE>
<CAPTION>
COMPARISON OF WALLACE CAGRs
PERCENTAGE
JUNE 7(1) AUGUST 11(2) INCREASE
----------- -------------- ------------
<S> <C> <C> <C>
1995 to 2000 Sales CAGR 9.0% 14.8% 64.2%
1995 to 2000 Pre-Tax Profit CAGR 9.0 19.6 118.3
</TABLE>
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(1) Numbers derived from Wallace's June 7, 1995 Strategic Plan without the
benefit of acquisitions.
(2) While the financial projections in Wallace's June 7, 1995 Strategic
Plan derive 31% of sales growth and 36% of pre-tax profit growth from
acquisitions, Wallace asserts that the August 11, 1995 projections
include the benefit from only one $25 million acquisition. Moore
believes that the evidence does not support this assertion.
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MOORE CORPORATION LIMITED
WALLACE'S NEW FINANCIAL PROJECTIONS (cont'd)
- - The Wallace financial projections as set forth in the August 11, 1995
presentation to the Wallace Board of Directors portray a large increase in
revenue growth and operating margins compared with the company's actual
performance in recent years.
<TABLE>
<CAPTION>
WALLACE PROJECTED VERSUS ACTUAL FINANCIAL INFORMATION
ACTUAL PROJECTED
----------------- --------------------
SIX YEARS ENDED SEVEN YEARS ENDING PERCENTAGE
JULY 31, 1995 JULY 31,2002 INCREASE
----------------- -------------------- ------------
<S> <C> <C> <C>
Sales CAGR 9.7% 13.5% 38.8%
Net Income CAGR 6.9 13.8 98.6
Average EBIT Margin 11.5 14.8 28.6
Average Pre-Tax Income Margin 12.2 15.0 22.3
Average Net Margin 7.9 9.4 17.8
</TABLE>
- - While Wallace clearly has experienced strong recent financial performance,
Wallace's annual report indicates that a significant component of the
company's recent sales growth was achieved by passing through to its customers
substantial increases in paper prices. Moore believes that this will not be
sustainable over the seven-year forecast horizon.
- - Goldman Sachs' "inadequacy" opinion, then, is based on financial projections
that were materially increased between June 7, 1995 and August 11, 1995. Even
with the recent financial performance of Wallace, Moore believes that the new
projections are difficult to justify.
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MOORE CORPORATION LIMITED
WALLACE'S NEW FINANCIAL PROJECTIONS (cont'd)
- - In summary, Moore views the following changes in Wallace's operating
projections to be highly suspect:
- The June 7, 1995 Strategic Plan assumed 31% of sales growth and 36% of
pre-tax profit growth would come from acquisitions. However, Wallace
asserts that the August 11, 1995 projections, which are substantially
more aggressive, assume only one $25 million acquisition.
- Management's new projections imply increases for the 1995 to 2000 sales
and pre-tax profit CAGRs from 9.0% each on June 7, 1995 to 14.8%
and 19.6%, respectively, by August 11, 1995.
- Management increased Wallace's fiscal year 2000 pre-tax profit from $127
million on June 7, 1995 to $215 million on August 11, 1995, nearly
a 70% increase in less than two months.
- ----------------------------------
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MOORE CORPORATION LIMITED
VALUATION CONSIDERATIONS
- - Discounted cash flow valuation of Wallace's stand-alone projections was the
primary valuation methodology performed by Wallace and its financial advisor,
Goldman Sachs, in rendering its "inadequacy" opinion on August 11, 1995 and
October 17, 1995.
- - Using a projected operating income growth rate of 9% and an operating income
margin of 12% (similar to the June 7, 1995 Strategic Plan in the absence of
acquisitions), a discounted cash flow analysis yields values remarkably
similar to the $44 Wallace stock price prevalent immediately prior to Moore's
tender offer announcement.
<TABLE>
<CAPTION>
WALLACE STAND-ALONE EQUITY VALUE PER COMMON SHARE
DISCOUNT RATE
12% 13% 14%
-------- -------- --------
<S> <C> <C> <C> <C>
EBIT Exit 9X $40.20 $37.89 $35.74
Multiple 10X 43.18 40.67 38.34
11X 46.17 43.45 40.93
12X 49.16 46.23 43.52
</TABLE>
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MOORE CORPORATION LIMITED
CONCLUSION
Even with the effect of Wallace's recent financial results, Moore believes that
Wallace has failed to justify the dramatic increase in Wallace's projections
from the June 7, 1995 Strategic Plan to those relied on for Goldman Sachs'
"inadequacy" opinions on August 11, 1995 and October 17, 1995. Wallace
shareholders should consider what valuation would be placed on Wallace by the
market in the absence of Moore's bid. Moore's offer of $60 per share is
available now.
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