Donnelley May Come Calling, But Will Worldcolor Answer?

The proposed deal for Quad/Graphics to buy rival printer Worldcolor makes it difficult for another bidder to step in, though stock analysts predict R.R. Donnelley will try.

The Quad-Worldcolor agreement says neither company can encourage a competing proposal or “knowingly participate in any way in discussions or negotiations with, or furnish or disclose any information . . . in connection with any Acquisition Proposal.” The one exception: if one of the companies receives a proposal that its board of directors deems better than the proposed Quad-Worldcolor deal.

That means Donnelley or any other suitor would have to make a superior bid without having the intimate knowledge of Worldcolor that Quad executives no doubt have gained the past few months. Donnelley has plenty of people who worked for Worldcolor’s predecessors, but they lack up-to-date information on customer negotiations, labor contracts, capacity utilization, and other important areas.

Stock analysts at RBC Dominion Securities praised the proposed deal but said Donnelley could top it, reports Andrew Willis of the The Globe and Mail of Toronto. They said Quad’s proposal for Worldcolor values it at up to $13.70 per share but that Donnelley could bid more than $15 per share “and still have a deal that makes economic sense,” Willis reported.

RBC noted that Donnelley competes with Worldcolor in more businesses than Quad does (such as telephone directories and short-run publications), creating more potential synergies from a Donnelley purchase of Worldcolor. Donnelley made three attempts last year to buy Worldcolor’s predecessor, Quebecor World, but that was complicated by Quebecor’s bankruptcy reorganization.

The RBC report was issued before the complex (118-page) agreement between Quad and Worldcolor had been made available on the Web sites of U.S. and Canadian securities regulators. The agreement indicates that Quad will establish a wholly owned subsidiary that will “amalgamate” with Worldcolor into a new company known as “World Color Press Inc” that will have its registered office in Montreal.

Don't read too much into that last statement. It says nothing definitive about what the parent company will be called or where it will be located. Perhaps it indicates that Quad will use the Worldcolor (brand name) and World Color Press (legal name) in Canada, where Quad is hardly known.

With the Quadracci family maintaining voting control of the new Quad, it seems likely that the headquarters will remain in Wisconsin.

"Quad is very invested in Wisconsin," Joel Quadracci, Quad's chairman and CEO, told the Milwaukee Journal Sentinel this week. "My hope is that we actually grow jobs in Wisconsin," Quadracci said, calling the company's five plants in the state among the company's most efficient.

Related Articles:

• Donnelley Takes Its Ball and Goes Home: After three tries in less than a month, Donnelley gave up on buying Quebecor World last June.
• Printing's New Odd Couple Leaves Some Questions Unanswered: There are still some unknowns regarding the proposed Quad-Worldcolor deal, which resulted from discussions between the two companies' contrasting CEOs.