Quad/Graphics makes bid to acquire bankrupt Maryland company

Sussex-based Quad/Graphics Inc. has signed an agreement to acquire substantially all of the assets of Vertis Holdings Inc., a Baltimore, Md.-based company that has filed for bankruptcy, for $258.5 million.

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. Vertis expects to generate approximately $1.1 billion in revenues and approximately $60 million in EBITDA, adjusted for restructuring, impairment and other transaction-related expenses, during fiscal year 2012.

After taking into account significant anticipated synergies, Quad/Graphics expects that the acquisition will be accretive to earnings, excluding any non-recurring integration costs. The combined entity is expected realize efficiencies and cost-savings derived from a superior and more efficient operating platform, expanded volume-driven mailings and more efficient procurement programs.

“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.”

Vertis’ board and senior management team accepted the offer from Quad/Graphics following a review of 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. “By combining the talents and resources of these two great companies, we will be able to enhance the levels of service, quality and technological innovation we provide to our clients, further improving the effectiveness of our programs and increasing clients’ returns on their marketing investments. We are excited by the opportunities ahead and thank our lenders for their continued support in securing a smooth transition for our businesses.”

To facilitate the intended sale, Vertis, along with its subsidiaries, has filed voluntary petitions for relief under Chapter 11 of the United States 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.

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. Vertis expects to pay suppliers in the normal course for all goods and services delivered after October 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 companies’ manufacturing and service platform.

Presuming the acquisition goes through, Vertis employees and operations will become part of Quad/Graphics.

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