UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
R.R. DONNELLEY & SONS COMPANY
--------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $1.25 per share
--------------------------------------------------------------------------------
(Title of Class of Securities)
257867101
--------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 27, 2006
--------------------------------------------------------------------------------
(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
--------------------------------------------------------------------------------
1) Names of Reporting Persons. I.R.S. Identification Nos. of Above Persons
(entities only):
Atlantic Investment Management, Inc.
--------------------------------------------------------------------------------
2) Check the Appropriate Box if a Member of a Group (See Instructions):
(a) (b)
--------------------------------------------------------------------------------
3) SEC Use Only
--------------------------------------------------------------------------------
4) Source of Funds (See Instructions): AF, OO
--------------------------------------------------------------------------------
5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(d)
or 2(e):
Not Applicable
--------------------------------------------------------------------------------
6) Citizenship or Place of Organization: Delaware
--------------------------------------------------------------------------------
Number of 7) Sole Voting Power: 10,811,400*
-------------------------------------------
Shares Beneficially 8) Shared Voting Power: 0
-------------------------------------------
Owned by
Each Reporting 9) Sole Dispositive Power: 10,811,400*
-------------------------------------------
Person With: 10) Shared Dispositive Power: 0
-------------------------------------------
--------------------------------------------------------------------------------
11) Aggregate Amount Beneficially Owned by Each Reporting Person:
10,811,400*
--------------------------------------------------------------------------------
12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions):
Not Applicable
--------------------------------------------------------------------------------
13) Percent of Class Represented by Amount in Row (11): 5.0%*
--------------------------------------------------------------------------------
14) Type of Reporting Person (See Instructions): IA
--------------------------------------------------------------------------------
* Includes: (i) 3,417,100 shares (1.6%) of the Issuer's Common Stock, par
value $1.25 per share ("Shares"), beneficially owned by AJR International Master
Fund, Ltd., a British Virgin Islands company, (ii) 4,906,640 Shares (2.3%)
beneficially owned by Cambrian Master Fund, Ltd., a British Virgin Islands
company, (iii) 2,476,260 Shares (1.1%) held in several Managed Accounts (the
"Managed Accounts"), and (iv) 6,500 Shares (0.002%) 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 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 1. Security and Issuer.
-------------------
This statement relates to the common stock, par value $1.25 per share
(the "Shares"), of R.R. Donnelley & Sons Company (the "Issuer"). The Issuer has
principal executive offices located at 111 South Wacker Drive, Chicago, Illinois
60606.
Item 2. Identity and Background.
-----------------------
(a) This statement is filed by Atlantic Investment Management, Inc., a
Delaware corporation (the "Reporting Person"), with respect to 10,811,400 Shares
over which the Reporting Person has sole dispositive and 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 of 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.
-------------------------------------------------
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 was $30,810,998.
Item 4. Purpose of Transaction.
----------------------
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 (i) actions which might be taken by the
management of the Issuer to maximize shareholder value of the Issuer and (ii)
improving the Issuer's investor relations. Attached are letters dated January
27, 2006 and December 8, 2005 to the Chief Executive Officer of the Issuer,
outlining the Reporting Person's proposal for a substantial share repurchase
plan. 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.
------------------------------------
(a) Based upon the information contained in the Issuer's Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on
November 8, 2005, there were issued and outstanding 215,500,000 Shares as of
October 31, 2005.
(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 10,811,400
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
---- -------- ----- -------------------
11/30/05 100,000 $34.1665 Open Market Purchase
12/28/05 40,000 $34.4226 Open Market Purchase
12/29/05 80,000 $34.5996 Open Market Purchase
12/30/05 90,000 $34.2100 Open Market Purchase
01/04/06 20,000 $33.8963 Open Market Purchase
01/26/06 300,000 $32.3131 Open Market Purchase
01/27/06 300,000 $32.6624 Open Market Purchase
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 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer.
------------------------------------------------------------------------
Not Applicable
Item 7. Material to be filed as exhibits.
--------------------------------
See Exhibit A attached hereto.
SIGNATURE
---------
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.
January 27, 2006
ATLANTIC INVESTMENT MANAGEMENT, INC.
By: /s/ Alexander J. Roepers
-----------------------------------
Alexander J. Roepers, President
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE
FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001).
Exhibit A
---------
Atlantic Investment Management, Inc.
By Fax and FedEx
January 27, 2006
Mr. Mark A. Angelson
Chief Executive Officer
R.R. Donnelley & Sons Company
111 South Wacker Drive
Chicago, Illinois 60606
Dear Mark:
I am writing you to reiterate our December 8, 2005 proposal (see attached
letter) to R.R. Donnelley & Sons (RRD) for a $1 billion share repurchase, with
the intent to complete the repurchase promptly through open market and
negotiated transactions. For $1 million to $3 million of after-tax cash costs,
you can add 10% to RRD's earnings per share over and above RRD's currently
projected earnings growth (see attachment).
In the response to our proposal, you agreed with our suggestion that management
should be seen as proactive in enhancing shareholder value along all possible
avenues.
Over the past seven weeks, despite further weakness in RRD shares, there has
been no publicly-announced action on this highly compelling and timely proposal.
While we share a keen interest in enhancing value for all RRD shareholders, we
appear to have a different sense of urgency as it relates to acting on the
opportunity created by the combination of RRD's weak share price, low borrowing
cost, generous dividend yield and solid balance sheet.
Your and your team's hard work over the past two years to integrate RRD and
Moore Wallace, improve earnings and redirect the business portfolio to higher
margin and growth areas is impressive, and we remain highly supportive of these
efforts.
Now is the time to leverage the fruits of all this hard and smart labor over 186
million shares outstanding, instead of the current 217 million shares, achieving
much enhanced value for all RRD shareholders.
Sincerely,
Alexander J. Roepers
President
Atlantic Investment Management, Inc.
1/27/06
RRD - $1B Share Repurchase Accretion Analysis
On 2006 Estimated Results
-------------------------
EPS Impact
----------
Number of Shares Repurchased 31.3
Price/Shr $32.00
Total Cost $1,000.0
5.3% Interest on Cost of Funds $53.0
Estimated 2006 Net Income $594.6
Less After Tax (36.3% Rate) Cost of Added Interest Exp $33.8
-----
Pro Forma Net Income $560.8
2006 Shares Out 217.5
Less Acquired 31.3
----
Pro Forma Shrs Out 186.3
Pro Forma EPS $3.01
----------------------------------------------------------------------------
Accretion Over Assumed 2006 EPS of $2.73 $0.28
----------------------------------------------------------------------------
% Accretion 10.3%
=====================
After Tax Cash Cost
-------------------
After Tax Incremental Interest Expense $33.8
Less Dividends Saved on Repurchased Shares $32.5
-----
----------------------------------------------------------------------------
Total After Tax Cost $1.3
----------------------------------------------------------------------------
RRD - $1B Share Repurchase Accretion Analysis
On 2007 Estimated Results
-------------------------
EPS Impact
----------
Number of Shares Repurchased 31.3
Price/Shr $32.00
Total Cost $1,000.0
5.3% Interest on Cost of Funds $53.0
Estimated 2007 Net Income $662.2
Less After Tax (36.3% Rate) Cost of Added Interest Exp $33.8
-----
Pro Forma Net Income $628.4
2007 Shares Out 218.0
Less Acquired 31.3
----
Pro Forma Shrs Out 186.8
Pro Forma EPS $3.37
----------------------------------------------------------------------------
Accretion Over Assumed 2007 EPS of $3.04 $0.33
----------------------------------------------------------------------------
% Accretion 10.7%
=====================
After Tax Cash Cost
After Tax Incremental Interest Expense $33.8
Less Dividends Saved on Repurchased Shares $32.5
-----
----------------------------------------------------------------------------
Total After Tax Cost $1.3
----------------------------------------------------------------------------
Atlantic Investment Management, Inc.
By Fax and FedEx
December 8, 2005
Mr. Mark A. Angelson
Chief Executive Officer
R.R. Donnelley & Sons Company
111 South Wacker Drive
Chicago, Illinois 60606
Dear Mark:
As one of R.R. Donnelley & Sons' (RRD) largest shareholders with almost 10
million shares (representing a 4.6% ownership stake), we share with you and the
Board of Directors a keen interest in ensuring that RRD achieves sustainable
growth of shareholder value for all RRD shareholders.
Pursuant to my meeting of today with RRD's Chief Financial Officer Glenn Richter
as well as our recent conversations, I am writing you to underscore our
contention that a unique and opportune time has arrived to consider a large
share repurchase. We see the combination of a weak share price, low interest
rates, a relatively high dividend yield and an already well-balanced portfolio
of businesses (arguably reducing the immediate need for another large
acquisition) as contributing to the timeliness of a large share repurchase.
We therefore strongly urge you and the Board of Directors to authorize a $1
billion share repurchase, with the intent to complete the repurchase promptly
through open market and negotiated transactions.
The proposed $1 billion share repurchase would add more than 9% to RRD's
earnings per share growth in the coming year with negligible after-tax cash
cost. Please see the attached for details. In addition to increasing earnings
per share, this action is likely to result in a higher P/E multiple for RRD
shares as management will be seen as more proactive in enhancing shareholder
value along all possible avenues. Importantly, RRD would maintain a solid
balance sheet with ample flexibility to pursue its capital spending and
acquisition plans.
I appreciate your and the Board of Directors' time and attention to this matter.
Sincerely,
Alexander J. Roepers
President
Atlantic Investment Management, Inc.
12/8/05
RRD - $1B Share Repurchase Accretion Analysis
On 2006 Estimated Results
-------------------------
EPS Impact
----------
Number of Shares Repurchased 29.4
Price/Shr $34.00
Total Cost $1,000.0
5.3% Interest on Cost of Funds $53.0
Estimated 2006 Net Income $594.6
Less After Tax (36.3% Rate) Cost of Added Interest Exp $33.8
-----
Pro Forma Net Income $560.8
2006 Shares Out 217.5
Less Acquired 29.4
----
Pro Forma Shrs Out 188.1
Pro Forma EPS $2.98
----------------------------------------------------------------------------
Accretion Over Assumed 2006 EPS of $2.73 $0.25
----------------------------------------------------------------------------
% Accretion 9.2%
=====================
After Tax Cash Cost
-------------------
After Tax Incremental Interest Expense $33.8
Less Dividends Saved on Repurchased Shares $30.6
-----
----------------------------------------------------------------------------
Total After Tax Cost $3.2
----------------------------------------------------------------------------
RRD - $1B Share Repurchase Accretion Analysis
On 2007 Estimated Results
-------------------------
EPS Impact
----------
Number of Shares Repurchased 29.4
Price/Shr $34.00
Total Cost $1,000.0
5.3% Interest on Cost of Funds $53.0
Estimated 2007 Net Income $662.2
Less After Tax (36.3% Rate) Cost of Added Interest Exp $33.8
-----
Pro Forma Net Income $628.4
2007 Shares Out 218.0
Less Acquired 29.4
----
Pro Forma Shrs Out 188.6
Pro Forma EPS $3.33
----------------------------------------------------------------------------
Accretion Over Assumed 2007 EPS of $3.04 $0.29
----------------------------------------------------------------------------
% Accretion 9.6%
=====================
After Tax Cash Cost
-------------------
After Tax Incremental Interest Expense $33.8
Less Dividends Saved on Repurchased Shares $30.6
-----
----------------------------------------------------------------------------
Total After Tax Cost $3.2
----------------------------------------------------------------------------