(Adds comments from company conference call in paragraphs 4-11 and stock-price activity in paragraph 3.)

Quad/Graphics Inc. confirmed plans to take over Canadian rival World Color Press Inc. (WC.T) in a deal that will give shareholders of World Color about 40% of a combined company that will list on a U.S. stock exchange.

Privately held printer Quad/Graphics and World Color aim to close the deal this summer. The combined company, which will be number two behind R.R. Donnelley & Sons Co. (RRD), will have nearly 30,000 employees.

In Toronto Tuesday, World Color is up C$2.48, or 25%, to C$12.50 on just 3,900 shares.

On a conference call, Mark Angelson, chairman and chief executive of World Color, called Quad/Graphics the most "technologically sophisticated" and "forward-thinking" company in the industry.

The complex transaction, in which Quad/Graphics purchases World Color substantially for common stock, is as follows: Quad/Graphics will register its Class A common stock on a U.S. exchange, and at closing, each World Color common share will be converted via a share exchange ratio into Class A common shares of the combined company.

The share-exchange ratio can't be determined until just before closing because it depends on how many preferred shares will be converted into World Color common shares and how many World Color warrants are exercised. At closing, World Color shareholders will receive 40% of the shares and Quad/Graphics will hold on to its existing 60%.

While callers pressed for details about the deal's value, executives said they simply didn't know because they couldn't predict how World Color shares will trade between now and closing. However, Angelson stressed that investors should focus on the "beautiful synergies."

The deal is estimated to generate about US$225 million in pretax net annualized synergies within two years, though Angelson called that number "conservative."

As reported in Tuesday's Wall Street Journal, sources estimated the takeover at about US$1.3-US$1.4 billion.

The companies' talks date back to Aug. 11, a few weeks after Quebecor World - World Color's predecessor - emerged from bankruptcy protection. Other alternatives were explored during Quad/Graphics' "exhaustive" due diligence, but the board determined the sale was the best route.

Angelson noted that the 60/40 split is fair to both companies and World Color is "delighted" with the value it's receiving. Details about how the split was arrived at will be included in a forthcoming S4 filing, he said.

Worldcolor and Quad/Graphics had combined revenue for the 12 months ended Sept. 30 of US$5.1 billion. Joel Quadracci, chief executive of Quad/Graphics, will become chairman, president and chief executive of the combined company. The board will include six current Quad/Graphics directors and two World Color directors, including Angelson.

The companies said closing of the transaction isn't contingent on financing, with US$1.2 billion of committed financing available from JPMorgan Chase and U.S. Bank.

Quad/Graphics and Worldcolor have agreed not to solicit other offers and have agreed to a US$40 million break-up fee payable to either party under certain circumstances if the deal fails to close.

Montreal-based World Color prints such magazines as Sports Illustrated and Rolling Stone.

Quad/Graphics, based in Sussex, Wis., has clients such as Newsweek, GQ and the L.L. Bean catalog.

-By Judy McKinnon, Dow Jones Newswires; 416-306-2100; judy.mckinnon@dowjones.com

 
 
Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
Historical Stock Chart
From Jun 2024 to Jul 2024 Click Here for more Donnelley (R.R.) & Sons Co. Charts.
Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
Historical Stock Chart
From Jul 2023 to Jul 2024 Click Here for more Donnelley (R.R.) & Sons Co. Charts.