LSC, Quad/Graphics abandon $1.4 billion merger after U.S. antitrust suit

WASHINGTON (Reuters) - LSC Communications Inc LKSD.N and Quad/Graphics QUAD.N terminated their $1.4 billion merger on Tuesday, a month after the U.S. Justice Department filed a lawsuit to block the deal, sending LSC shares down 36% to a record low.

FILE PHOTO: Makan Delrahim, Assistant Attorney General of the Antitrust Division, U.S. Department of Justice, speaks at the 2019 Milken Institute Global Conference in Beverly Hills, California, U.S., April 29, 2019. REUTERS/Lucy Nicholson/File Photo

Shares of LSC were down to $2.22 in heavy trading, while Quad/Graphics shares were up 7.9% at $8.20.

Quad/Graphics had said in October it would buy LSC Communications in an all-stock deal, bringing together two of the biggest companies that print books, magazines and catalogs.

“This result is a victory for American consumers and publishers, and a testament to the Division’s resolve to enforce the antitrust laws,” Assistant Attorney General Makan Delrahim, who heads the Justice Department’s antitrust division, said in a statement.

“Had this merger gone forward, it would have harmed competition that benefits publishers, retailers, and, ultimately, consumers through lower prices and greater availability of printed products from popular books to grade school textbooks.”

Wisconsin-based Quad/Graphics had revenue of $4.2 billion in 2018, while LSC Communications Inc, which was spun off by printing firm R.R. Donnelley in 2016, had revenues of $3.8 billion last year.

“We disagree with the DoJ’s conclusion regarding our transaction, especially in the context of industry trends,” LSC Chief Executive Officer Thomas Quinlan said.

Quinlan said the companies decided to terminate the deal because of the cost and time involved in challenging the Department of Justice.

The Justice Department had said the two companies were each other’s biggest rivals, citing internal documents that refer to a price war and a “two-horse race between LSC and Quad.”

In its complaint, filed in federal court in Illinois, the Justice Department had said Quad and LSC were the only realistic option for many publishers because of their complex printing equipment.

It cited at least one bidding war between the two that resulted in the offer of a $10 million signing bonus.

Quad/Graphics said it will pay LSC a reverse termination fee of $45 million while LSC Communications said it would suspend its quarterly dividend in order to bring down its debt and fund its restructuring programs.

LSC said suspending the dividend will allow the company to redeploy about $35 million in cash annually.

LSC also cut its full-year sales forecast as well as its adjusted EBITDA (earnings before interest, tax, depreciation and amortization) forecast range due to a drop in demand in its magazines, catalogs and logistics segment.

Reporting by Arjun Panchadar in Bengaluru and David Shepardson in Washignton; Editing by Shounak Dasgupta, Shailesh Kuber and Paul Simao