Quad/Graphics Buys Vertis in Chapter 11 Deal

SUSSEX, WI—Quad/Graphics Inc. and Baltimore-based Vertis Holdings announced the execution of an agreement through which Quad/Graphics will acquire substantially all of the assets comprising Vertis’ businesses for $258.5 million, which includes the payment of approximately $88.5 million for current assets that are in excess of normalized working capital requirements.

To facilitate the intended sale, Vertis, along with its subsidiaries, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code and, at the same time, filed documents seeking the bankruptcy court’s approval of the proposed sale to Quad/Graphics. Vertis has the support of its lenders with respect to the sale to Quad/Graphics.

Upon completion, the acquisition will enhance Quad/Graphics’ position as a leader in the production of retail advertising inserts, direct marketing and in-store marketing solutions while providing continuity, financial stability and continued business investment for Vertis’ clients and employees.

Quad/Graphics intends to use cash on hand and draw on its revolving credit facility to finance the acquisition of Vertis, which expects to generate approximately $1.1 billion in revenues during fiscal year 2012. The combined entity will realize efficiencies and cost savings derived from a more efficient operating platform, expanded volume-driven mailings and more efficient procurement programs.

Clients will reportedly benefit from an enhanced range of products, services and revenue-generating solutions; expanded industry vertical expertise; increased manufacturing flexibility and distribution efficiencies from an extended geographic footprint; and new opportunities to realize mailing and distribution cost savings from the combined volumes and capabilities of the two companies.

“Quad/Graphics believes in the power of print in today’s multichannel media world and this acquisition further strengthens our ability to help retailers and direct marketers drive meaningful business results,” said Joel Quadracci, chairman, president and CEO of Quad/Graphics. “The combination of Quad/Graphics and Vertis is a natural and strategic fit.

“The complementary capabilities of our two businesses in retail advertising inserts, direct marketing and in-store marketing will further strengthen and expand our offerings, and will allow us to even better serve our clients, achieve additional efficiencies and build long-term value for our shareholders. We look forward to welcoming Vertis’ clients and employees into our family,” added Quadracci.

Vertis’ board and senior management team accepted the offer from Quad/Graphics following an extensive and in-depth process to review strategic opportunities for its businesses conducted over the past several months.

“The offer from Quad/Graphics was the most compelling proposal we received because it ensures continuity for clients and the greatest number of opportunities for our employees while also maximizing value for our stakeholders,” said Gerald Sokol, Jr., CEO of Vertis.

As part of the sale through the Chapter 11 case, Vertis and its advisors will evaluate any competing bids that may be submitted in order to ensure it receives the highest and best offer for its assets. The agreement with Quad/Graphics comprises the initial stalking horse bid in the court-supervised auction process under Section 363 of the Bankruptcy Code.

Vertis and Quad/Graphics anticipate the sale will be approved by the bankruptcy court during the fourth quarter of 2012 and will most likely close in the first quarter of 2013, pending the receipt of customary regulatory approvals. Vertis expects to operate its business as usual until the sale closes and, subject to the bankruptcy court’s approval, has obtained $150 million in debtor-in-possession financing from a group of lenders led by GE Capital, Restructuring Finance to ensure it is able to meet its financial obligations throughout the Chapter 11 cases.

Vertis also has filed a series of first day motions seeking authority to continue paying employee wages and benefits; honoring media prepayments, postage deposits and other commitments under existing client programs; and otherwise managing its day-to-day operations and serving its clients as usual. It expects to pay suppliers in the normal course for all goods and services delivered after Oct. 10, 2012. Payment for goods and services delivered prior to the filing will be addressed by Vertis through the Chapter 11 process.

Quad/Graphics will announce its plans for integration following the completion of the sale process, including any changes to the combined company’s manufacturing and service platform.

Vertis is advised in this transaction by Perella Weinberg Partners, Alvarez & Marsal, and Cadwalader, Wickersham & Taft LLP. Quad/Graphics is advised by Blackstone Advisory Partners, Arnold & Porter LLP and Foley & Lardner LLP, special counsel for antitrust advice.

In other company news, Quad/Graphics reached a $900 million-plus agreement with Time Inc. that significantly extends and expands its magazine print work for the venerable publisher. Under the multiyear agreement, Quad will handle more than 85 percent of the print work for 19 titles. The work represents a 35 percent increase in incremental Time Inc. print volume for the printer over the term of the agreement, beginning in January 2014.