(Adds comments from company conference call in paragraphs 4-11
and stock-price activity in paragraph 3.)
Quad/Graphics Inc. confirmed plans to take over Canadian rival
World Color Press Inc. (WC.T) in a deal that will give shareholders
of World Color about 40% of a combined company that will list on a
U.S. stock exchange.
Privately held printer Quad/Graphics and World Color aim to
close the deal this summer. The combined company, which will be
number two behind R.R. Donnelley & Sons Co. (RRD), will have
nearly 30,000 employees.
In Toronto Tuesday, World Color is up C$2.48, or 25%, to C$12.50
on just 3,900 shares.
On a conference call, Mark Angelson, chairman and chief
executive of World Color, called Quad/Graphics the most
"technologically sophisticated" and "forward-thinking" company in
the industry.
The complex transaction, in which Quad/Graphics purchases World
Color substantially for common stock, is as follows: Quad/Graphics
will register its Class A common stock on a U.S. exchange, and at
closing, each World Color common share will be converted via a
share exchange ratio into Class A common shares of the combined
company.
The share-exchange ratio can't be determined until just before
closing because it depends on how many preferred shares will be
converted into World Color common shares and how many World Color
warrants are exercised. At closing, World Color shareholders will
receive 40% of the shares and Quad/Graphics will hold on to its
existing 60%.
While callers pressed for details about the deal's value,
executives said they simply didn't know because they couldn't
predict how World Color shares will trade between now and closing.
However, Angelson stressed that investors should focus on the
"beautiful synergies."
The deal is estimated to generate about US$225 million in pretax
net annualized synergies within two years, though Angelson called
that number "conservative."
As reported in Tuesday's Wall Street Journal, sources estimated
the takeover at about US$1.3-US$1.4 billion.
The companies' talks date back to Aug. 11, a few weeks after
Quebecor World - World Color's predecessor - emerged from
bankruptcy protection. Other alternatives were explored during
Quad/Graphics' "exhaustive" due diligence, but the board determined
the sale was the best route.
Angelson noted that the 60/40 split is fair to both companies
and World Color is "delighted" with the value it's receiving.
Details about how the split was arrived at will be included in a
forthcoming S4 filing, he said.
Worldcolor and Quad/Graphics had combined revenue for the 12
months ended Sept. 30 of US$5.1 billion. Joel Quadracci, chief
executive of Quad/Graphics, will become chairman, president and
chief executive of the combined company. The board will include six
current Quad/Graphics directors and two World Color directors,
including Angelson.
The companies said closing of the transaction isn't contingent
on financing, with US$1.2 billion of committed financing available
from JPMorgan Chase and U.S. Bank.
Quad/Graphics and Worldcolor have agreed not to solicit other
offers and have agreed to a US$40 million break-up fee payable to
either party under certain circumstances if the deal fails to
close.
Montreal-based World Color prints such magazines as Sports
Illustrated and Rolling Stone.
Quad/Graphics, based in Sussex, Wis., has clients such as
Newsweek, GQ and the L.L. Bean catalog.
-By Judy McKinnon, Dow Jones Newswires; 416-306-2100;
judy.mckinnon@dowjones.com