…Like a Jewish wedding. Creo and Scitex are both largely Jewish in their management, many of their staff, and many of the shareholders. At such a Jewish wedding, the most important factor is the two families coming together. The couple seem to be secondary.


Commentary-Andy Tribute, International Editor, Seybold Report March 6, 2000 Following my commentary written for our last issue, I’ve had an opportunity to give greater consideration to the issues surrounding the acquisition of Scitex’s prepress business by Creo Products. I feel I perhaps made the wrong assessment in that article. Since my original writing, I have also had the opportunity to speak in depth with both Creo and Scitex staff, from the CEO and president levels down, in both companies. My original belief was that this deal was forced through at the wishes of the Scitex shareholders and the Creo management. I now believe that this is not true. My belief was that this agreement was driven by the Scitex shareholders determined to force up the value of their investment in the company. Scitex’s share price has never really recovered from its bad times a few years ago, and has not reflected the excellent performance of the company.

In fact, in the final quarter of 1999, Scitex recorded the highest quarterly turnover in its history. There is no doubt that this deal was initially driven by the need to improve the capital value of the company. This, however, was not a recent decision. For years, Scitex has realized it would be necessary either to acquire, merge or partner with, or be sold to another company in order to succeed in the rapidly changing market that exists today. The company has had all sorts of discussions with potential partners, etc., in the past few years. These included most of the consumables companies as well as many of the other industry suppliers. The most recent of these discussions were with Xerox. We believe that these discussions failed mainly because of disagreements over valuations, but also because the deal was being discussed away from operating management. There would have been many real synergies in a relationship with Xerox, which is determined to establish itself as a major graphic arts player. The logic of the deal with Creo came about over a year ago following discussions between Creo and Scitex senior management. This was not a shareholder-driven deal. The flotation of Creo was an enabling technique to allow the Scitex deal to go ahead. The logic of the deal is to become a more efficient operation in the key area of computer-to-plate imaging. With less than five percent of the world’s printers having moved into CTP, the two companies saw that they could make better use of their resources in developing the products needed for the future if they worked together. They felt that they could provide a far better degree of customer service as one organization. They no doubt also realized that they could be more profitable and more dominant as one, and could make it very difficult for the competition to succeed against them. It is very interesting to look at the deal and see what it really means. It is, in fact, like a Jewish wedding. Creo and Scitex are both largely Jewish in their management, many of their staff, and many of the shareholders. At such a Jewish wedding, the most important factor is the two families coming together. The couple seem to be secondary. In this case, the past few months have seen the families coming together with staff of all levels spending time getting to know one another. (The biggest beneficiary to date appears to be Air Canada, with its direct flights to Israel.) This is a deal done with the full agreement of all key staff members in both companies. The shareholders also are happy. What, then, is my interpretation of the deal now? First, it is not a deal until the wedding ceremony takes place, which appears will be at the end of March at the Creo AGM. All the members of the families, however, are already in agreement, and unless there is some antitrust or monopoly objection, it appears to be a done deal. When the deal is done, Scitex will own 27% of Creo, and Creo/Scitex will be an operating division of Creo. With 27 percent, Scitex will be the largest shareholder in Creo. Most other shareholders are institutional or venture funds. My reading of this is that Scitex has taken control of Creo in a reverse takeover. Yoav Chelouche, the chief executive of Scitex, is now deputy chairman of Creo. He also oversees Scitex’s non Creo elements, including Scitex Digital Printing, Scitex’s Wide-Format division and its shares of Karat Printing Company, Vio and the new Aprion ink-jet development. Scitex has emerged from this a far stronger company and its shareholders must be highly delighted. No doubt they will be more delighted once Karat Printing and Aprion start generating income. [believe we have seen the full turnaround of Scitex. In the 1 980s it was the number one prepress company in the world. Then it almost got killed by the switch to the desktop and out of proprietary systems. It incurred huge losses before it turned the corner. Now Scitex is back on top. It has succeeded through its strategies of broadening its business to generate income in other markets, but, above all, it has succeeded by the success of its Lotem CTP systems. It is the Lotem product that brought Creo to the altar, and it was the strength of Scitex’s user base and its workflow that made Lotem a success. The company now is cash rich and ready to expand more. I don’t believe it wants to get into conventional consumables of film and plate. Where will Scitex go in the future? I think its investment in Vio and its recent stake in RealTime Image may be the clue. The Internet, E-commerce, E-business, and its future in printing is where I believe we shall see Scitex go to build its business, while Creo/Scitex continues to expand the CTP market. I would guess it is putting real R&D emphasis on making certain it is not sidelined if CTP switches away from thermal imaging and back to imaging of conventional uv printing plates. Scitex is back, and I think every other supplier will be watching it very closely.