January 26, 2010 / 12:25 PM / 8 years ago

UPDATE 4-Quad/Graphics to pay $1.3 bln for World Color

* Proposed deal seen worth between $1.3 bln and $1.4 bln

* Quad/Graphics to become a publicly traded company

* Takeover expected to close in summer of 2010

* World Color shares up almost 28 pct in Toronto (Recasts, adds comments; in U.S. dollars unless noted)

By Euan Rocha

TORONTO, Jan 26 (Reuters) - U.S. commercial printing company Quad/Graphics Inc said on Tuesday it plans to acquire Canadian rival World Color Press WC.TO in an almost all-stock deal that would expand the size and reach of its magazine and catalog printing business.

The companies said they could not yet place an exact value on the deal, in part because Quad/Graphics is privately held.

According to a source familiar with the friendly transaction, it is worth between $1.3 billion and $1.4 billion, not including assumed debt.

"Quad/Graphics is effectively acquiring World Color for substantially common stock, with the possibility of a small amount of cash," said Joel Quadracci, chief executive of Quad/Graphics, the largest privately held printer in the United States.

Montreal-based World Color, formerly known as Quebecor World, was founded more than a century ago and prints magazines such as Sports Illustrated, US Weekly, Reader's Digest and Rolling Stone.

The new company, to be controlled by the Quadracci family through ownership of high-voting class B shares, will be North America's second-largest commercial printer after R.R. Donnelley & Sons Co RRD.O.

"This transaction allows us to expand our geographic scope by entering the Canadian marketplace and certain Latin American markets where we currently do not have a presence," Quadracci said.

World Color has sizable catalog, directory, retail insert and book printing segments. It operates in Canada, the United States, Argentina, Brazil, Chile, Colombia, Mexico and Peru.

Its predecessor company, Quebecor World, filed for bankruptcy protection in January 2008 and emerged in mid-2009 under the name World Color Press.

Early in 2009, R.R. Donnelley & Sons offered to buy Quebecor World for about $1.5 billion in cash and stock, but the offer was rejected. [ID:nN10338012] [ID:nLN597652]

QUAD/GRAPHICS GOING PUBLIC

Privately held Quad/Graphics plans to become a publicly traded company once the deal closes.

Once the deal is complete, Quad/Graphics' shareholders will hold about 60 percent of the combined entity, while World Color shareholders will own the remainder.

The combined entity, which will have nearly 30,000 employees worldwide, is expected to generate annual revenues of more than $5 billion. Quad/Graphics estimates the combined company will also generate about $225 million in annualized savings within 24 months of closing.

The deal is expected to close in the second or third quarter of 2010.

Quad/Graphics said the deal is not contingent on financing and that it has $1.2 billion of committed financing from JPMorgan Chase and U.S. Bank in the form of a $400 million revolving credit and a $800 million term loan.

As of Sept. 30, the two companies had a combined unaudited debt balance of about $1.7 billion.

Under the terms of the deal, each World Color common share outstanding at closing will be converted after a multi-step process into a number of class A common shares of Quad/Graphics at a share exchange ratio to be determined at closing.

Shares of World Color were up C$2.69, or 27 percent, at C$12.71 on the Toronto Stock Exchange.

$1=$1.07 Canadian Additional reporting by Pav Jordan in Toronto and Isheeta Sanghi in Bangalore

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