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
“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
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
“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.