The Department of Justice filed a civil antitrust lawsuit Thursday in the U.S. District Court for the Northern District of Illinois seeking to block Quad’s proposed acquisition of LSC Communications. Last fall, Quad announced its intention of acquiring LSC, a move that would unite the country’s two largest printers.
The DoJ said it was filing the suit “to preserve competition in the markets for magazine, catalog, and book printing services in the United States.” In 2018, Quad had revenue of about $4.2 billion. That same year, LSC's sales were $3.8 billion. The numbers put both companies far ahead of any competitors. According to the DoJ complaint, if the acquisition goes through, publishers and retailers “would be denied the benefits of competition that has spurred lower prices, improved quality, and greater printing output.”
“If this deal were allowed to proceed, Quad would dominate the markets for magazine, catalog, and book printing services and be able to raise prices and reduce quality at the expense of publishers, retailers, and, ultimately, American consumers,” said Makan Delrahim, assistant attorney general in the antitrust division, in a statement.
Quad fired back at the lawsuit, noting, among other things, that neither Quad nor LSC has as much as a 5% share of the overall printing market. “We are fully committed to defending the DoJ’s lawsuit in court,” said Joel Quadracci, chairman, president and CEO of Quad in a statement. “We believe the combination of Quad and LSC is the best outcome for all stakeholders and that the DoJ’s attempt to stop the transaction will unfavorably impact our clients, our employees, and the print industry.”
Quadracci further noted that the merger with LSC “will create a highly efficient print manufacturing and distribution platform that will strengthen the role of print in an increasingly multichannel media world that is dominated by digital advertising.” He questioned why the DoJ would seek to block Quad’s purchase of LSC when it has done nothing to address the growing market power of the tech giants.
While the U.S. printing market generates about $76 billion in aggregate annual revenue, Google and Facebook alone have worldwide digital ad sales revenues totaling more than $75 billion, Quadracci said. And while the tech giants are growing, many of the printing industry’s largest customers are downsizing, or have gone out of business, thanks to the loss of advertising dollars to digital competitors. If the printing industry is to survive, Quadracci went on, it needs to continue to consolidate in order to form more efficient companies.
The lawsuit could put the merger in jeopardy, even if the case doesn't make it to court. According to the terms of the acquisition, either Quad or LSC can terminate the merger if the transaction is not completed by October 30, or if there is a final, non-appealable order preventing the transaction. In this case, Quad will be required to pay LSC a “regulatory approval reverse termination fee” of $45 million.