Printer vs. printer: R. R. Donnelly makes unsolicited bid for Quebecor World

One of the world's biggest printers is making an offer to swallow one of the world's biggest printers. Both are major suppliers to the Canadian and U.S. magazine publishing industry.

R. R. Donnelly & Sons of Chicago is making an unsolicited offer of $1.35 billion for the troubled Quebecor World in what may have huge implications for both QW's debtors and for its employees.

In a letter to Quebecor World president and CEO Jacques Mallette, Thomas J. Quinlan III, the president and CEO of R. R. Donnelly, says that the company has been carefully following the U.S. bankruptcy protection (Chapter 11) proceedings and the reorganization plans in both the U.S. and Canada.

After reviewing the draft Plans in light of our own valuation of the relevant companies as stand-alone businesses, we believe that the proposed transaction set out in this letter is superior for the Quebecor Debtors and their creditors to the restructuring proposed by the Plans in their current form.

The proposal is to pay the debtors of Quebecor

• approximately US$700,000,000 in cash plus
• $257,000,000 of cash on QW's balance sheet (estimated as of June 30, 2009) plus
• 30 million shares of RRD common stock,with a value of US$394,200,000.

The stock would represent about 15% of the total capitalization of R. R. Donnelly & Sons Inc.

Donnelly is a multinational company, with some 60 plants and is involved in commercial printing, direct mail, financial printing, print fulfillment, labels, forms, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries.

Quebecor World was forced to seek bankruptcy protection in the U.S. and suffered a $1.7 billion loss last year, though it is saying that it expects to see a modest $7 million profit next year and said it hoped to exit all forms of creditor protection, with a wholly reorganized business by this July.

The company suffered a major liquidity crisis at the end of 2007. At the time it was predicted that QW would be broken up and its various parts cherry-picked by major competitors like Donnelly.

Things got so bad that, after being a proud part of Quebecor Inc.'s empire, the troubled printer was more or less cut adrift when its parent firm told its printing subsidiary to remove the name Quebecor from its signage, because it financial woes were dragging down the parent and other division, Quebecor Media.

Quebecor World was the result of the 1999 US$2.7 billion merger of Quebecor Printing Inc. and World Colour in a US$2.7 billion deal thereby becoming a major player who was said to have kept the price of printing very competitive, at least in the U.S. At one point, Quebecor World could credibly claim that it was the world's largest commercial printer, with 28,000 employees and approximately 90 printing plants and related facilties worldwide. (Many observers said the cash crisis the company suffered was a logical outcome of the huge costs of acquisition and modernization of World Colour.)