Update: Quebecor Becomes No. 1 Printer With World Color Buyout

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Quebecor Printing Inc. agreed this week to a $2.7 billion acquisition of World Color Press Inc. in a move the companies called the largest merger in the history of the printing industry.


The combination would propel Quebecor, Montreal, ahead of R.R. Donnelley & Sons Co., Chicago, as the largest printer in North America. Quebecor expects the acquisition to double its annual U.S. revenue to $4.7 billion. The new company, to be called Quebecor World Inc., will print magazines, catalogs, books, direct mail and other materials.


Size increasingly is the name of the game in the printing industry, which has seen much consolidation among the second- and third-tier companies over the last 15 years. Larger companies are more likely to get favorable prices when they order raw materials or machinery because of their purchase volume. The few biggest firms also have greater clout with blue-chip clients that have global printing needs.


The Quebecor-World Color merger is significant because it combines two first-tier players. In the past, the giant players generally have reached down into the ranks of smaller companies and made acquisitions in the $50 million to $500 million range.


Printing industry analysts who spoke with DM News were split on whether R.R. Donnelley was likely to counter Quebecor's move with an acquisition of its own. At least one analyst suggested R.R. Donnelley might look at a smaller company within the still highly fragmented industry, but Denis Giroux, who follows the space for BLC Securities, Montreal, was skeptical.


"There is room for more acquisitions, but I don't think Donnelley is going to rush into anything. If they do, they'll do focused acquisitions on niches they don't fill right now," Giroux said.


Quebecor boosts its offset printing capabilities by buying World Color. Offset technology uses film to project images on paper, usually for shorter print runs. Quebecor had such capability already, but the company's strength has been in rotogravure printing, which uses durable engraved copper for longer print jobs. World Color's biggest business segments are commercial, inserts and circulars, representing 29 percent of the company's revenue. Catalogs contribute 23 percent of World Color's sales and direct mail 8 percent.


Giroux speculated that Quebecor wants to improve the management of its U.S. operations and hopes World Color will strengthen its executive ranks in this country.


A unit of communications holding company Quebecor Inc., Quebecor Printing has grown 12-fold over the past decade, mostly by buying other companies. Its previous acquisitions include Maxwell Graphics Holdings, American Signature, Eagle Lithographing, Sayers Communications, the Petty Company and the Franklin Division of Brown Printing.


The merger was the second major printing industry transaction in the last few weeks. Big Flower Holdings Inc. agreed in June to be acquired by leveraged buyout firm Thomas H. Lee Co. for $1.9 billion.


Quebecor will pay about $840 million in cash for World Color, Greenwich, CT, and assume $1.3 billion of World Color's debt.
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