WhatTheyThink is keeping you informed real-time about Quad/Graphics’ intent to acquire Worldcolor, formerly Quebecor World. This big industry news was broken on WSJ online and on WhatTheyThink as well as here on PrintCEO. During the investor conference call held this morning, Mark Angelson of Worldcolor and Joel Quadracci of Quad/Graphics talked about the strategic intent of the acquisition. Angelson called it an acquisition of truly historic proportions in the printing industry. He had high praise for Joel and his leadership team and the nimbleness of the Quad/Graphics organization, a company he described as highly attuned to, and best able to be responsive to, evolving needs in a multichannel world. ”Print now is increasingly digital and complementary to digital media,” he said. ”…That is where the future lies and the future is now.”
The acquisition will allow Quad/Graphics to add new products and services and enter new geographies. Angelson said that he believes Quad/Graphics’ estimate of U.S. $225 million in pre-tax net annualized synergies within 24 months is conservative, but also pointed out that he would not be the Chairman/CEO/President of the combined company and respects the estimates that Quad/Graphics had put forward. Quadracci added, “This is a transformational event for Quad/Graphics and we are excited about the opportunities this acquisition presents our customers, shareholders and employees. It will enable us to expand the future of print … the reality is that print drives consumers to digital media and is a vital component of our multichannel world.”
Because of the complexity of this transaction, but the share exchange ratio and actual value of the transaction will not be determined until closing. However, 60% of the combined company will go to existing Quad/Graphics shareholders and 40% will go to current Worldcolor shareholders. This means that the Quadracci family will continue to control the company based on its ownership of Class B shares. There is no financing condition precedent to this transaction closing. Although it is, of course, subject to shareholder and regulatory approval, it is expected to close in the second or third quarter of the year. $1.2 billion in funds have been committed by Morgan Stanley and others to complete the transaction.
In terms of the previous offer by RR Donnelley, Angelson indicated in response to an analyst question that the Quad/Graphics transaction was “entirely friendly,” and would offer the opportunity for Worldcolor shareholders and employees to join what he described as the most efficient, technically efficient, automated and forward thinking company in the industry. Angelson also indicated that this transaction had been in the works since August 11th, when Quadracci and Angelson first had lunch to discuss the transaction, and was followed by an exhaustive due diligence on the part of Quad/Graphics.
In response to another analyst question about any regulatory barriers, Angelson estimated the value of the U.S. print market at $160 billion, made reference to RR Donnelley’s approximately $9 billion in revenues, and indicated that with the combined new company expected to come in at just over $5 billion in revenues, there were no anticipated regulatory barriers in such a fragmented print market. Angelson indicated an S4 with full background and details of the deal will be filed with the SEC within the next month or so.
Angelson quipped, “Not since Thomas Jefferson dined in the White House alone has there been such a collection of intelligence that went into putting this deal together.”
It is interesting that this largely share-based transaction will now make Quad/Graphics a public company, to be listed on a U.S. stock exchange to be named in the future at a price to be determined at that time. In the past, Chairman, CEO and President Joel Quadracci has told WhatTheyThink that the company has been advantaged by being able to manage generationally, rather than being constrained by the quarter-to-quarter expectations of the Street. During the call, Quadracci was quick to point out that although Quad/Graphics has been privately held, it has been run with the same stringent financial management and integrity that would be expected of a public company. As the deal unfolds and the integration of the two companies begins, and when the company is listed on a U.S. stock exchange with full public reporting, it will be interesting to see how that actually plays out in real life, and whether “generational management” can continue to be a reality for the combined companies. If anyone could pull this off, it would certainly be Joel Quadracci.
More information on this transaction, including a replay of the conference call and supporting materials, can be found here.
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