De Luxe Corporation

Deluxe Corporation (DC) is the largest printer of paper checks in the United States, founded in 1915. DC has recently successfully restructured the operational side of their business to increase cost competitiveness and refocus on their core business. Operating in a slowly declining business segment the CEO desires to mine all he can out of the core business.

Operational and financial strategy

The declining segment is characterised by a high degree of concentration and competitiveness. Existing firms need to take market share from competitors to avoid negative growth in sales. On top of this, advancing payment technology pressures companies that only focus on traditional payment methods, e.g. checks. These companies would see an acquisition of DC as a way to tap into their established customer base. In the face of these threats DC majorly restructured their operations by outsourcing, divesting 20 non-core businesses and dramatically reducing the number of printing plants and employees in the late 1990s. In 2000 the company further tightened their strategic focus to the core business, by spinning off two electronic technology companies. The massive downsizing and substantially cost cutting has put DC in a position to obtain cost leadership for the declining paper-check segment. Together with DC´s market leading position (49% market share) and established customer base we believe that DC is well prepared to handle a price war with subsequent declining profit margins. Although we are fully aware that the paper-check segment is declining, it does so in slow pace and we expect DC to remain profitable for years to come. The paper check industry is not affected by cyclical patterns and 60% of the consumers still prefer paper checks. We therefore believe that the operational risk is relatively low.

DC realigned the financial structure by repurchasing shares thereby decreasing the equity base by 90%. This initiative was funded by retained earnings and cash holdings...