Quad/Graphics To Acquire World Color Press

Quad/Graphics Inc. will acquire World Color Press Inc., the printing firm previously called Quebecor World.

In January 2008, Quebecor World filed for Chapter 11 bankruptcy protection. The company changed its name to World Color upon emerging from its reorganization in late July 2009.

Commerical printer Quad/Graphics wasn’t the first suitor for World Color: In mid-2009, R.R. Donnelley made two unsolicited bids to acquire the firm. Donnelley’s last bid, which was rebuffed by World Color, was valued at more than $1.5 billion in cash and stock.

While Quad/Graphics and World Color did not release the value of the deal, a report from Reuters included an estimate of between $1.3 billion and $1.4 billion. That figure does not include any debt assumed by Quad/Graphics, according to Reuters. As of Sept. 30, 2009, the two companies had a combined debt balance of $1.7 billion.

In a statement, Quad/Graphics did indicate it would distribute $140 million to its existing shareholders, and that it would give World Color $93.3 million to purchase warrants. Once the transaction closes, Quad/Graphics, which is currently privately held, will become a publicly traded firm.

Under terms of the agreement, Worldcolor shareholders will receive hold approximately 40% of the outstanding shares of Quad/Graphics and Quad/Graphics’ shareholders will hold roughly 60%. The transaction is expected to close during summer 2010.

The combined companies will have nearly 30,000 employees serving customers in the U.S., Canada, Latin America and Europe, with the Canadian and Latin American footprints being added to Quad/Graphics as a result of the acquisition. During the 12 months ended Sept.30, 2009, the two firms generated $5.1 billion, and reported EBITDA of U.S. $647 million.

Quad/Graphics’ management estimates that the combination will result in $225 million in pre-tax savings during the first 24 months after the acquisition.

“With increased access to capital markets, we plan to make appropriate investments in our platform and data-driven solutions to secure the future of print,” said Joel Quadracci, Quad/Graphics chairman, president and CEO, in a statement.

Quadracci will serve as chairman, president and CEO of the expanded company. The future board will be comprised of the six current Quad/Graphics directors and two Worldcolor directors: Mark Angelson, currently Worldcolor chairman and CEO, who will chair the board committee on integration and consolidation, and a director to be named prior to closing, who will become a member of the audit committee.

The Analyst’s Take: As stated above, Quad/Graphics will become a publicly traded company. Why fund the deal through a public offering? According to a letter to clients from CEO Joel Quadracci, the company preferred to use that route to fund the deal, rather than ratchet up its debt. That said, Quadracci added “the Harry V. Quadracci family will retain 78 percent of the voting control of the company through the ownership of high-vote stock. In other words, Quad/Graphics remains firmly in the control of my family…”. Depending on how the voting and non-voting shares are distributed, how the family deals with the quarter-upon-quarter pressures of Wall Street will be interesting to watch. Embracing Wall Street money can be a beautiful thing: Embracing Wall Street expectations can be decidedly less picturesque.