DOJ spoils Quad/Graphics’ huge deal

quad investor lawsuit
The Quad/Graphics headquarters in Sussex

Last updated on August 6th, 2019 at 10:19 am

Print isn’t dead, but the federal government has dealt a serious blow to Quad/Graphics.

Last year Sussex-based Quad announced it would acquire Chicago-based LSC Communications in a massive $1.4 billion deal, combining the nation’s two largest printing companies. Both are on the Inc. 1000 list, Quad at No. 608 and LSC at No. 649. (Full disclosure, Quad is the printer for BizTimes Milwaukee).

As the world has gone increasingly digital Quad has been forced to transform its business, and its industry. The company has made more than a dozen acquisitions since 2010, closed 34 printing plants and reduced its overall headcount by 10,000. Obviously, those were painful cuts to affected employees, but the printing industry clearly needed to consolidate to survive in the modern communications environment. Quad/Graphics itself has evolved into more than just a printer; it’s now a marketing company that offers printing and a variety of marketing services (including data analytics and digital marketing) to its clients.

The LSC deal was Quad’s next big move. LSC has annual revenue of nearly $4 billion. LSC and Quad each has more than 50 printing facilities.

In trying to make the case for the importance of the deal, Quad and LSC said their combined revenue would drop by more than $1.5 billion by 2022 without combining or taking other actions.

But in June the U.S. Department of Justice sued the companies to block the deal. Recently, the companies agreed to walk away from the deal. Quad has to pay LSC a $45 million deal termination fee.

It’s disappointing that the companies caved so easily. They should have fought the DOJ, although Quad chairman, president and chief executive officer Joel Quadracci said waiting for an answer from the courts would cause uncertainty and erode the value of the deal.

The DOJ argued that if the deal had been approved, Quad/Graphics would have dominated the magazine, catalog and book printing markets.

But Quadracci said the DOJ doesn’t understand that printers aren’t just competing with each other but with all modern communication venues, including companies like Google and Facebook, which Quad says combined have about the same amount of digital ad revenue as the revenue of the entire printing industry.

“The DOJ really indicated to us that they didn’t see that we were really competing with digital, which was the really challenging part to understand,” Quadracci said. “We’re all fighting for the same dollars; it’s just that print’s been on the losing end of it for a while… (The DOJ thinks) we’re just thinking about print as it was 20 years ago, but it isn’t 20 years ago, it’s today, it’s 2019 … It is a competitive market, but the reality is most of our competition is coming from outside the industry.”

Now Quad/Graphics must focus on continuing to expand its business beyond print into data analytics and marketing. But the federal government has done the company, one of southeastern Wisconsin’s biggest employers, no favors.

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Andrew is the editor of BizTimes Milwaukee. He joined BizTimes in 2003, serving as managing editor and real estate reporter for 11 years. A University of Wisconsin-Madison graduate, he is a lifelong resident of the state. He lives in Muskego with his wife, Seng, their son, Zach, and their dog, Hokey. He is an avid sports fan and is a member of the Muskego Athletic Association board of directors.

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