US mega-merger is called off

Jo Francis
Tuesday, July 23, 2019

The industry mega-merger between US print giants Quad/Graphics and LSC Communications is off – with Quad having to stump up a $45m fee as a result – after the two firms “mutually agreed” to terminate the agreement following official attempts to block it.

The $1.4bn takeover deal, which would have created an $8bn (£6.4bn) turnover group, was announced at the end of October last year, and gained shareholder approval in February.

However, last month the US Department of Justice launched legal action aimed at blocking the merger, which it said would result in Quad having a dominant position in the markets for magazine, catalogue and book printing. It said Quad would be able to raise prices as a result. The court case would have run into next year.

In a statement, Quad said: “The parties have determined that the added delay, uncertainty and cost of legal challenges would have likely eroded a considerable amount of the expected benefits of the merger.”

An industry source commented: “This is not surprising. It was a merger too far. You can’t just have one dominant printer with a 90% share of the market. Quad being a predator will have to look for new markets – they might look in Europe, or elsewhere in the world. I wonder what will happen to the share price?”

Calling off the transaction also means that Quad will have to pay LSC a previously-agreed $45m reverse termination fee.

Quad chairman and chief executive Joel Quadracci said: “We are disappointed by the Justice Department’s decision to sue to block the transaction and believe that the lawsuit does not reflect the dynamics of print today and the competitive effect of digital media.

“However, rather than devote time and resources to prolonged litigation, we are choosing to focus on ensuring that our clients benefit from our Quad 3.0 growth strategy through exciting innovations in printing and integrated multichannel marketing solutions that reduce complexity, increase efficiencies and enhance marketing spend effectiveness. We believe this focus is in the best long-term interest of all our stakeholders.”

Thomas Quinlan, LSC’s chairman and chief executive, made a similar statement. He said: “We disagree with the DOJ’s conclusion regarding our transaction, especially in the context of industry trends. However, we and Quad recognise the significant additional time and resources that would be required to challenge the DOJ’s complaint and have therefore decided mutually that it is in the best interests of our respective companies to terminate the merger agreement.

“The LSC board of directors and senior management are confident that LSC has strong capabilities to innovate and further develop our leadership position in the industry. We are incredibly grateful to all of our employees for their work throughout the process. We are as dedicated as ever to serving our clients’ needs with the same level of service, innovation and industry-leading solutions that they have come to expect. Moving forward, we will continue to drive shareholder value.”

LSC also warned on its outlook and announced that it was suspending its dividend following an “unprecedented drop in demand” at its MCL business unit (Magazines, Catalogues and Logistics).

“We believe our ongoing operational restructuring programs, the $45 million break-up fee being paid by Quad and the suspension of the dividend provide LSC with stable financial ground to move forward in our increasingly competitive and evolving industry,” Quinlan added.

Quad/Graphics had sales of $4.2bn last year, while LSC’s turnover was $3.83bn.

Both firms are listed on the NYSE, which had not opened for trading at the time of writing.

Neither group has printing sites in the UK. Walstead acquired LSC's Polish web offset business last year

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