Quad and LSC Communications announced this morning that they have mutually agreed to call off the planned purchase of LSC by Quad. Announced last October, the deal would have united the country’s two largest printers. The purchase was scheduled to be completed this October, but in June, the Department of Justice sued to stop the merger.
A judge denied a bid by Quad for an expedited trial and instead set a court date for November 14. In making the announcement of terminating the merger, both companies said they determined “that the added delay, uncertainty, and cost of legal challenges would have likely eroded a considerable amount of the expected benefits of the merger.”
As required by the merger agreement, Quad will pay LSC a termination fee of $45 million.
“We are disappointed by the Justice Department’s decision to sue to block the transaction and believe that the lawsuit does not reflect the dynamics of print today and the competitive effect of digital media,” said Joel Quadracci, Quad chairman, president, and CEO, in a statement. “However, rather than devote time and resources to prolonged litigation, we are choosing to focus on ensuring that our clients benefit from our Quad 3.0 growth strategy through exciting innovations in printing and integrated multichannel marketing solutions that reduce complexity, increase efficiencies, and enhance marketing spend effectiveness.”
Quad will report its second quarter results on July 31, which will include a discussion of its plans for the future.
For its part, LSC executives said they also disagreed with the DOJ action, but added that the board and senior management "are confident that LSC has strong capabilities to innovate and further develop our leadership position in the industry.”
That said, LSC released preliminary second quarter results that showed total net sales of $865 to $875 million and a net loss of $22 million to $26 million.
LSC chairman Thomas Quinlan noted that while LSC’s book and office products segments “performed in line with expectations during the second quarter, we have seen an unprecedented drop in demand in our magazines, catalogs and logistics segment. This faster pace of decline in demand in the MCL segment results primarily from the accelerated impact of digital disruption of demand for printed materials.”
As a result of the problems in its MCL unit, LSC has lowered its expectations for earnings and cash flow for 2019. In turn, LSC has suspended its dividend “in order to allocate greater capital to LSC’s debt reduction and ongoing operational restructuring programs,” Quinlan said. “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.”