Quad, LSC call off merger


July 24, 2019

SUSSEX — Under pressure from a federal antitrust lawsuit, two rival printing giants, Chicago-based LSC Communications and Quad/Graphics, have agreed to terminate their proposed $1.4 billion merger.

The announcement Tuesday ends the deal to put the nation’s two largest printers under one corporate banner, and a potentially lengthy court battle to challenge the Justice Department’s lawsuit, which was set for a mid-November trial in Chicago federal court.

Sussex-based Quad/Graphics will pay LSC a termination fee of $45 million as required by the terms of the merger agreement.

The breakup fee comes at a potentially opportune time for LSC, which was spun off from Chicago printing company R.R. Donnelley in 2016. The company released preliminary second-quarter results and lowered full-year earnings guidance Tuesday, based on “an unprecedented decline” in demand for printed magazines and catalogs due to digital disruption, Thomas Quinlan, LSC’s chairman, CEO and president, said in a news release.

LSC also said it would suspend dividend payments to allow the company to allocate more money toward debt reduction and restructuring.

“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 said.

“We disagree with the DOJ’s conclusion regarding our transaction, especially in the context of industry trends,” Quinlan said in the news release. “However, we and Quad recognize 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.”

Joel Quadracci, Quad’s chairman, president and CEO, said in a separate news release that the company was “disappointed” by the Justice Department’s decision to sue to block the transaction, but was choosing to terminate the merger and focus on its own growth strategy “rather than devote time and resources to prolonged litigation” in the case, which would likely last into 2020.

Quad announced in October it would buy LSC in an all-stock deal valued at $1.4 billion, including the assumption of debt.

The Justice Department filed the antitrust lawsuit last month to block the proposed merger, alleging it would eliminate beneficial competition and raise the prices of books, catalogs and magazines.

Both companies initially vowed to fight the antitrust lawsuit and the Justice Department’s allegations, touting cost-saving synergies in the proposed merger and pointing to digital competition as the real threat to print publishing.

In a news release, the Justice Department called the decision to terminate the merger agreement a “victory” for American consumers and publishers.

“Had this merger gone forward, it would have harmed competition that benefits publishers, retailers, and, ultimately, consumers through lower prices and greater availability of printed products from popular books to grade school textbooks,” Assistant Attorney General Makan Delrahim of the Justice Department’s antitrust division said.

Quad and LSC provide similar services, including printing and distributing magazines, catalogs and books. In 2018, Quad’s revenues were $4.2 billion, while LSC’s revenues were $3.8 billion.

LSC reports its final second quarter results on July 30.