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Quad/Graphics to Acquire Worldcolor

Tuesday, January 26, 2010

Press release from the issuing company

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SUSSEX, WISCONSIN and MONTREAL, QUEBEC, -- Quad/Graphics, Inc., the largest privately held printer in the U.S., and World Color Press Inc. ("Worldcolor"), the second largest provider of print, digital and related services in the Americas, today announced that their boards of directors unanimously have approved a definitive arrangement agreement whereby Quad/Graphics will acquire Worldcolor, enhancing Quad/Graphics' position as a leader in the printing industry with increased efficiencies, greater geographic reach and broader product and service scope. The expanded Quad/Graphics will have nearly 30,000 employees serving customers in the U.S., Canada, Latin America and Europe. Worldcolor and Quad/Graphics had aggregate unaudited revenues for the 12-month period ended September 30, 2009 of U.S. $5.1 billion and aggregate unaudited adjusted EBITDA of U.S. $647 million. Worldcolor's and Quad/Graphics' unaudited adjusted EBITDA margins for the same period were 9.7% and 17.6%, respectively.

The transaction is expected to close approximately in the summer of 2010 and be accretive to the earnings of the combined enterprise. Quad/Graphics' management estimates that the combination will generate approximately U.S. $225 million in pre-tax net annualized synergies within 24 months. Concurrent with the closing of the transaction, Quad/Graphics intends to become a publicly traded company. Quad/Graphics expects to register its Class A Common shares with the U.S. Securities and Exchange Commission (SEC) and proceed with a listing on a leading U.S. exchange. Under terms of the agreement, Worldcolor shareholders will receive at closing approximately 40 percent of the outstanding shares of Quad/Graphics and Quad/Graphics' shareholders will hold approximately 60 percent of the shares.

The acquisition will enhance Quad/Graphics position as a commercial printing leader in North America serving the Magazine, Catalog, Retail Insert, Book, Directory, and Direct Mail product segments and enhance Quad/Graphics' standing as one of the leading commercial printers in the world. The expanded Quad/Graphics will be better positioned to succeed in the dynamic, highly fragmented, and competitive printing industry as it will offer clients a more comprehensive range of services, including a broader variety of product types and revenue generating solutions; an enhanced manufacturing platform that will make available Quad/Graphics' industry leading technology and automation to the combined platform; an expanded geographic footprint and customer service presence; and new opportunities to realize distribution efficiencies through improved speed-to-market and product integrity for USPS delivered products and volume driven postage savings programs, such as co-mailing, all backed by experienced and proven leadership.

"By combining the strengths of both companies, we will enhance our leadership position in the printing industry," said Joel Quadracci, Quad/Graphics Chairman, President and Chief Executive Officer. "Customer needs and demands are rapidly evolving, and our expanded company will be even better equipped to meet those demands. With increased access to capital markets, we plan to make appropriate investments in our platform and data-driven solutions to secure the future of print. With our strong commitment to innovation and customer satisfaction, combined with the greater operational efficiencies we are targeting, we will be better able to achieve our strategic objectives and continue to generate industry-leading margins and profitable growth, all while creating opportunities for our customers, shareholders and employees."

"This transaction presents compelling opportunities for the achievement of synergies and other efficiencies," said Mark Angelson, Worldcolor Chairman and Chief Executive Officer. "Quad/Graphics has a long tradition of leadership and operational excellence. I have the highest regard for Joel and his management team, whom I consider to be among the best and brightest executives anywhere. They have built a company known for having the industry's best technology, automation and robotics, and world-class customer service. Quad/Graphics will make a fine, stable home for Worldcolor managers and employees. I look forward to joining the Quad/Graphics Board and sharing our experience as we combine these storied companies while ensuring that we focus on maximizing shareholder value and creating opportunities for customers and employees well into the future."

Added Mr. Quadracci: "Through our comprehensive due diligence, we learned Worldcolor has very talented and professional employees who have performed well in challenging and turbulent times. We look forward to having Worldcolor employees join and strengthen our industry-leading team. In addition, this transaction allows us to expand our geographic scope by entering the Canadian marketplace and certain Latin American markets where we currently do not have a presence."

"Mark Angelson has a long tenure in public company management and an unmatched record of success in leading consolidations in our industry and creating value for public company shareholders. I am pleased that he will join our Board and that we will benefit from his experience as we integrate these two companies," concluded Mr. Quadracci.

Through the acquisition, Quad/Graphics plans to achieve greater operational efficiencies, capacity rationalization, enhanced production flexibility and reduced cycle time, and significantly improve its supply chain management capabilities. Additionally, Quad/Graphics expects to benefit from a strong pro forma credit profile with enhanced liquidity and generate solid free cash flow.

Mr. Quadracci will serve as Chairman, President and Chief Executive Officer of the expanded company. The future Board will be comprised of the six current Quad/Graphics directors and two Worldcolor directors: Mr. Angelson, who will Chair the Board Committee on Integration and Consolidation, and a director to be named prior to closing, who will become a member of the Audit Committee, bolstering Quad/Graphics' commitment to excellence in financial reporting.

Transaction Summary

Each Worldcolor Common Share outstanding at closing will be converted after a multi-step transaction into a number of Class A Common Shares of Quad/Graphics at a Share Exchange Ratio to be determined at closing. Worldcolor has Convertible Preferred Shares (and related accrued but unpaid dividends) that at the option of each holder, may be converted into Worldcolor Common Shares or, if not previously converted, will be redeemed for cash at U.S. $8.00 per share. Worldcolor has two series of Warrants outstanding that either convert to Worldcolor Common Shares or will be redeemed for cash at a price in accordance with contractually specified formulas.

Worldcolor Common Shareholders will receive Quad/Graphics Class A Common Shares, each having one vote per share, for approximately 40 percent total ownership of the Company. Quad/Graphics' shareholders will continue to own Class A, Class B and Class C shares for approximately 60 percent total ownership of the Company. The Harry V. Quadracci family will control the Company through ownership of the high-voting Class B shares. The Class C Shares are owned by a qualified retirement trust for Quad/Graphics employees. Any future dividend or consideration received will be distributed pro rata regardless of share class. The Class A Common Shares are expected to afford holders enhanced liquidity. Neither the Class B nor Class C Shares are expected to be publicly traded.

Simultaneously with the closing, U.S. $140.0 million will be distributed in cash to Quad/Graphics' existing Common Shareholders. Quad/Graphics will also provide at least U.S. $93.3 million to Worldcolor to purchase any Warrants not converted to Common Shares and to fund redemptions of or payments due on any other equity securities not converted to Common Shares. If less than $93.3 million is needed to make such purchases and redemptions, the remainder will be distributed to Worldcolor Common Shareholders in cash.

The closing of the transaction is not contingent on financing. There is U.S. $1.2 billion of committed financing from JPMorgan Chase and U.S. Bank to fund cash distributions, refinance Quad/Graphics' existing revolving credit facility, refinance Worldcolor's existing debt outstanding, fund expenses incurred in connection with the transaction and fund repayment of certain other Worldcolor obligations. As of September 30, 2009, the two companies had a combined unaudited debt balance of approximately U.S. $1.7 billion.

Completion of the acquisition is subject to Quad/Graphics and Worldcolor shareholder and regulatory approvals, including approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Canadian Competition Act and the Investment Canada Act. The transaction is also subject to the approval of the Superior Court of Quebec, Commercial Division. Shareholders of Quad/Graphics holding Quad/Graphics Common Shares having more than fifty percent of the voting rights in Quad/Graphics have entered into a voting agreement in support of the proposed transaction. The acquisition also is contingent on the SEC declaring effective Quad/Graphics' planned S-4/Proxy Circular filing.

Quad/Graphics and Worldcolor each have agreed not to solicit other offers, but may consider superior proposals from third parties in certain circumstances, subject to the match rights of the other party. The arrangement agreement also provides for the payment of a U.S. $40 million break-up fee to either party if the transaction is not completed under certain circumstances.

J.P. Morgan Securities Inc. served as financial advisor to Quad/Graphics and Foley & Lardner LLP and Torys LLP provided legal counsel. Morgan Stanley served as financial advisor to Worldcolor and Sullivan & Cromwell LLP and Osler, Hoskin & Harcourt LLP provided legal counsel.




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