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Publishers weigh impact of Quad-World Color merger

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R.R. Donnelley & Sons Co. made a public offer to buy Quebecor World when the Montreal-based printer was in bankruptcy protection last spring. The deal Donnelley finally offered was valued at about $1.8 billion after the Chicago-based printing giant upped its initial offer, which had been about $1.4 billion. But Quebecor ultimately rejected the overture. Last month the renamed Quebecor, now known as World Color Press, accepted an offer valued at about $1.3 billion to $1.4 billion from Quad/Graphics, a Sussex, Wis.-based printing company and Donnelley's chief competitor. The deal is expected to close this summer. It is unclear what impact the deal will have on pricing for magazine publishers. On one hand, putting together Quad/Graphics and World Color will probably result in the shutdown of printing plants, which will reduce capacity and potentially drive up prices. On the other hand, the larger Quad/Graphics may create a formidable foil for Donnelley, which could keep prices down. The combined Quad/Graphics and World Color would have had $5.1 billion in revenue for the year ended Sept. 30, 2009. Donnelley reported revenue of $11.6 billion in 2008, the last for which full-year figures are available. Magazine company production directors said they're pleased that Quad/Graphics would expand its short-run capacity, usually defined as 150,000 or fewer copies of a magazine per issue, by adding World Color. They also said they didn't see any real impact in the short term from the deal, but that there could be fallout by 2011. “There will be some head count reduction, and they'll look to consolidate some facilities,” said Tom Fogarty, director-production at Vance Publishing Corp., which currently prints at Donnelley. “Eventually, it will affect pricing if it takes capacity out of the market. There's still a glut of capacity.” Keith Hammerbeck, Advanstar Communications' corporate director-media operations, said a larger Quad/Graphics may balance the power of Donnelley, where Advanstar prints its magazines. “It makes for a very good option for publishers to have out there,” he said. When the acquisition is completed, Quad/Graphics, currently privately owned, will become a publicly traded company, with Quad's shareholders controlling 60% of the combined business and World Color shareholders, the remainder. “With increased access to capital markets, we plan to make appropriate investments in our platform and data-driven solutions to secure the future of print,” Joel Quadracci, Quad/Graphics chairman and president-CEO, said in a statement. Donnelley declined to comment for this story. M
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