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.  

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.

Transcontinental and World Color Gear Up for Consolidation While Donnelley Inhales Helium

With Transcontinental borrowing money for possible acquisitions and World Color Press making it clear who is in charge, The Big Printer Consolidation Dance had some interesting moves this week.

Meanwhile, industry leader R.R. Donnelley, which tried to be the Great Consolidator a few months ago, has wandered off for a dose of Helium.

Transcontinental announced Thursday that it will try to raise up to $500 million via debt and preferred-shares offerings “for general corporate purposes, which may include the repayment of indebtedness and the financing of acquisitions and investments provided market conditions are favourable.” That is apparently enough cash to gain a controlling stake in the other big printer based in Canada, World Color Press. Or is it still Quebecor World? Or maybe Novink.

World Color Press hasn't completely worked out the name thing since emerging from bankruptcy in July with its new but old name. Its Web site is still Quebecorworld.com, and many of its legal entities include "Novink", which was chosen and then abandoned as the name of the revived company.

But WCP did clear something else up: Mark A. Angelson, the person most responsible for consolidation of the North American printing industry, is definitely running the show. The company announced this week that the former Donnelley chief is now the CEO as well as chairman of World Color Press. Those who know him say he's there to do deals, not to make incremental changes.

What kind of deals Transcontinental has in mind is not clear. Besides the traditional commercial-printing business, it's involved in outsourced newspaper printing, newspaper publishing, and new media.

There was some speculation that Transcontinental's prospects were strained by its deal to print the San Francisco Chronicle because it might be stuck with an idle $230 million printing plant if the money-losing Chronicle's abandoned ink on paper. Hearst threatened to close down the Chronicle earlier this year if it didn't get union concessions.

But the prospectus for Transcontinental's debt offering says the Chronicle contract "provides for indemnification from Hearst Corporation should the San Francisco Chronicle cease publication or be sold." It also says the "contract size is for more than US $1billion (excluding paper) in revenues over 15 years."

And what of industry leader R.R. Donnelley, which made three unsuccessful attempts a few months ago to buy what was then known as Quebecor World? So far this month, it announced it is getting into the printer business in the form of a joint venture with HP to make digital inkjet presses.

It also spent $4.4 million on a minority stake in Helium, a "social publishing platform" that links freelance writers with publishers. It's not clear why Donnelley's interest has turned from buying other printers to Helium.

Maybe some RRD executives still grieving over the Quebecor debacle thought they could console themselves by taking a few big puffs and talking like Donald Duck.

Quebecor World Exits Bankrupty With a Familiar Name

Quebecor World went back to the future today, emerging from bankruptcy protection under the new but old name "World Color Press".

World Color Press and Quebecor Printing merged a decade ago to form Quebecor World. The company is changing its name to distinguish itself from its former parent, Quebecor Inc., a Canadian media company whose stake in the old Quebecor World is now worthless.

The new World Color Press is now owned mostly by the former lenders and other creditors of Quebecor World. The largest stockholders are Societe Generale, a Montreal-based bank, and Catalyst Fund Limited Partnership of Toronto. With the emergence from bankruptcy reorganization, a new board of directors chaired by Mark A. Angelson -- former CEO of printing rival R.R. Donnelley -- is now setting the company's direction.

The company's announcement said it obtained $800 million in exit financing, about two-thirds of which was used to pay off the special debtor-in-possession financing that kept it going while in Chapter 11. It also said World Color Press stock should begin trading on the Toronto exchange within 30 days.

Quebecor World had originally chosen "Novink" as its new name, but a QW official confirmed to Dead Tree Edition on Sunday that it dropped that name because of negative customer feedback. "Novink" appears in the names of many World Color Press subsidiaries. For example, the legal name of Quebecor World Logistics is now Novink Logistics LLC, though I suspect "World Color" rather than "Novink" will be used in the branding of the subsidiaries.