Sussex-based Quad/Graphics Inc. is suing Meredith Corp. after the Iowa-based publisher said it would terminate the printer’s contract on several titles, including InStyle and Southern Living.
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Quad/Graphics' Sussex headquarters.[/caption]
The dispute stems from a number of changes Meredith wanted to the specifications of its contracts with Quad for six current titles and two additional ones set to begin printing next year. In addition to InStyle and Southern Living, the titles also included Cooking Light, Health, Real Simple, Coastal Living, Travel + Leisure and Food + Wine.
Meredith’s changes included requiring polybag capacity for the titles and directing a number of operational process changes, according to the lawsuit filed last week in Waukesha County Circuit Court.
Claire Ho, a Quad/Graphics spokeswoman, said the company has had "a long and productive relationship" with Meredith and hopes to continue that relationship in the future.
"We did not enter lightly into the decision to file a complaint as we value our relationship with our clients," Ho wrote in an email. "We have spent considerable time and effort trying to resolve this matter amicably. At the core of the complaint is that we do not agree on contractual language, specifically as it relates to the Time Inc. titles that Meredith acquired."
"This is a straightforward contractual dispute, and the filing was an unfortunate last resort," Ho added, declining to provide additional details, citing the ongoing legal matter.
A representative of Meredith did not immediately respond to requests for comment.
In a June 5 letter, Chuck Howell, Meredith vice president for strategic sourcing, newsstand, production operations, wrote that “the needs of our business require the changes” and Quad’s other offers were “unworkable and unacceptable.”
“We trust that Quad will similarly understand and respect that Meredith must make the decision that best meets the needs of its business,” Howell wrote.
Quad says the changes go beyond what the contract allows for Meredith to request as specification changes, arguing the contract covers things like the type of paper or ink used for the magazines. According to court records, Meredith argues Quad is using an “extremely narrow interpretation” of the contract.
The agreements at issue date back to 2013 when the titles involved were owned by Time Inc. Meredith acquired Time earlier this year and is exploring the sale of Time, Sports Illustrated, Fortune and Money affiliated brands.
In an October 2012 press release, Quad touted a new $900 million, multi-year contract with Time that would increase the publisher’s volume with the company by 35 percent.
According to the lawsuit, Quad entered into 21 different agreements with Time since 2013, including in 2014 for six of the titles involved in the lawsuit. Those deals were amended twice in 2015 and 2016 to adjust freight and price rates. In October 2016, Quad and Time agreed to five-year extensions of the contracts, most of which were originally set to expire at the end of 2018.
As part of the extension, Quad agreed to base price reductions of 7 percent to 11 percent to be phased in over several years. The printer also received the business for two new titles, according to the complaint.
Quad says the discounts offered to Time are “worth millions of dollars” and the additional volume from the extended contracts and new titles represented the “principal benefit of the bargain” to Quad. The company also says in the lawsuit that Meredith’s decision to terminate the contracts comes before Quad begins to see the benefits from the amended contract. Meredith’s actions are “orchestrated to exact improper economic leverage over Quad,” the complaint says.
Meredith’s proposed changes would require significant capital expenditure investments that Meredith is “apparently unwilling to compensate Quad” for, according to the complaint.
After Quad shared its view on the proposed specification changes with Meredith, the publisher responded with a termination notice on July 3. Executives from the two companies met in Iowa on July 18 to discuss a possible resolution, but Meredith sent an affirmation of termination to Quad on July 24.
In the affirmation letter, Howell suggested a number of other terms Meredith would accept instead of the specification changes. Those terms included 100 percent selective polybag capacity, a more than 50 percent reduction in co-mailing fees and a 5 percent reduction in manufacturing costs on all Meredith volume, excluding titles the company is currently trying to sell. Meredith also sought a contract extention and commitment to support dynamic combo polybag capability.
“We understand supporting our polybag business comes with significant CapEx and I am confident that if you are willing to meet the conditions above we can agree on a mutually acceptable 'ramp up' period,” Howell wrote.
Quad filed its lawsuit four days later, claiming Meredith had broken the contract, not acted in good faith and unjustly enriched its business.
Quad is seeking, among other things, damages to be proven at trial.