Hell Freezes Over: Quad/Graphics Wants To Buy Worldcolor and Go Public

Here are a few quick observations regarding today's stunning announcement that Quad/Graphics has an agreement to buy Worldcolor (AKA World Color Press) and that the combined company's stock will be publicly traded:

• Note the press release's reference to “capacity rationalization.” Translation: Some plants will be closed.
• Though it is the country's third largest printer, Quad's finances have always been a bit of a mystery. That will change in a month or so when it has to file detailed reports with the Securities and Exchange Commission. 
• Quad is apparently more profitable than Worldcolor even though it is a smaller company, the press release indicates. That's why Quad's owners will get 60% of the new company and Worldcolor's will get 40%.
• Worldcolor has a mix of unionized and non-unionized plants. Quad is non-union and is managed in a way to avoid unionization through employee ownership, generous benefits, etc.
• Worldcolor has a variety of cultures and perspectives, reflecting its history of acquiring plants from a variety of companies. In contrast, Quad employees joke about “drinking the Kool-Aid” because of the company’s strong, rah-rah culture -- though some of the plants have definitely developed their own personalities and cultures.
• Anti-trust challenges seem likely. Worldcolor has a broader portfolio of businesses; for example, Quad does not deal much with book printing, short-run publications, or telephone books. But they are perhaps the two strongest co-mailers of magazines and catalogs (in terms of the savings they can offer via huge pools). And R.R. Donnelley is the only other North American printer that uses rotogravure, which is especially efficient at huge print orders (more than 1 million).
• Another potential hurdle is that either company may entertain, but not solicit, competing offers. Paging R.R. Donnelley.
  
• Interesting quotation from the investor presentation: "Consolidation likely to continue as industry participants seek to streamline costs to increase efficiency, maximize profitability, improve credit profiles and adapt to an increasingly dynamic and challenging endmarket environment."

After I finish picking my teeth up off the floor, I'll be writing more about this proposed transaction.