Facing an Oct. 30 deadline to complete their merger, printing giants Quad/Graphics and LSC Communications are asking a federal judge to move quickly to resolve a U.S. Department of Justice lawsuit that would block the deal.
Sussex-based Quad/Graphics and Chicago-based LSC announced the $1.4 billion deal last year, allowing Quad to potentially acquire one of its main competitors. The companies planned for the deal to close in mid-2019, but the DOJ filed a lawsuit June 20 to block the transaction.
The government argues the deal would allow Quad to dominate the market for magazine, catalog and book printing. Quad says the acquisition allows it to create a lower cost offering to compete with increasingly digital content distribution. Without the merger, the two companies estimate their revenues could fall by $1.5 billion by 2022.
Quad estimates the deal will create $135 million in cost savings from capacity rationalization, administrative efficiencies and supply chain management. The government argues those savings likely will not be passed on to customers, but Quad said it has an incentive to “pass savings on to customers to slow the accelerating trend towards digital substitution.”
The agreement Quad and LSC reached also calls for the deal to be complete by Oct. 30. If the deal does not close by the deadline, either company could walk away and Quad would be required to pay LSC $45 million.
The companies also say they need to complete the transaction to start realizing cost savings together or take action separately “to address the serious issue of excess capacity.”
According to court filings from Quad and LSC, the government asked the companies to skip a preliminary injunction hearing and agree to hold off on closing the deal until a full trial is held on the case, potentially in December with additional briefings stretching into 2020.
The companies previously agreed to not close on the acquisition until at least 31 days after the DOJ lawsuit was filed in exchange for the government not seeking a temporary restraining order that could slow down the court process.
Quad and LSC are asking a federal judge in the U.S. District Court for Northern Illinois to set an evidentiary hearing starting on Sept. 18. The companies say they were unable to work out a timeline to resolve the case before the Oct. 30 deadline and are willing to have a full trial in September if needed.
“The Expiration Date reflects a negotiated balance between the interests of allowing for a thorough review and providing Quad and LSC (and their customers, employees, and shareholders) with business certainty,” the companies say in court filings, arguing the Oct. 30 date is not arbitrary. “One year is a very long time in a business where more and more customers are moving their content and advertising to digital platforms, driving down demand for print products.”
The companies also say extending the deadline beyond Oct. 30 “is much easier said than done.”
“An extension would require the consent of both companies, and the ability to get that consent is highly uncertain in the present circumstances,” the companies’ filing says.
The uncertainty generated by the DOJ review of the deal has already cost LSC valuable employees and customers and Quad faces the possibility of $1.3 million in additional monthly interest costs on the financing of the deal if it does not close by the deadline, according to court documents.
The companies also argue a September hearing would not put the government at a disadvantage, noting the DOJ has investigating the merger for nearly eight months already. Quad and LSC have already turned over nearly 20 million pages of documents and responded to hundreds of pages of questions. The DOJ has also taken depositions from 22 officers and employees at Quad and LSC and the companies submitted four white papers on the potential competitive implications of the deal.
