Business Combination Creates Highly Efficient Print Platform to Fuel Quad’s 3.0 Transformation and Strengthen the Role of Print in a Multichannel Media World

Quad/Graphics a leading marketing solutions provider, and LSC Communications, Inc. (NYSE: LKSD) (“LSC Communications”), a leader in print and digital media solutions, today announced that their boards of directors have approved a definitive agreement whereby Quad will acquire LSC Communications in an all-stock transaction valued at approximately $1.4 billion, including the refinancing of LSC Communications’ debt. As of September 30, 2018, the combined company would have had annual revenue of approximately $8 billion.

STRATEGIC AND FINANCIAL RATIONALE

Creates a highly efficient print platform to fuel Quad’s 3.0 transformation and strengthen the role of print in a multichannel media world. Quad’s 3.0 strategy creates more value for all stakeholders by leveraging a strong print foundation as part of a much larger, more robust integrated marketing solutions offering, and the transaction will broaden Quad’s client base and revenue-generating potential.

Delivers cost- and time-saving opportunities for clients through:

- Enhanced production and distribution efficiencies and flexibility from the greater scale of the combined complementary platforms.
- Expanded logistics services and volume-driven postage savings programs, such as co-mailing, backed by experienced and proven leadership.
- Strengthened print management services and business process outsourcing.

Maintains long-term strategic vision by preserving Quadracci Family leadership and voting control in the company; Joel Quadracci will be the Chairman, President and Chief Executive Officer of the combined company.

Is expected to close in mid-2019, and be accretive to earnings, excluding non-recurring integration costs. Net synergies are expected to be approximately $135 million, and will be achieved in less than two years and result in substantial additional Free Cash Flow generation.
Results in a more profitable company with a strong and healthy balance sheet that provides continued financial flexibility to strategically deploy capital between investing back into the business, making strategic acquisitions and returning capital to shareholders through consistent dividends and share repurchases.
“This is a defining moment in Quad’s 47-year journey,” said Joel Quadracci, Quad/Graphics Chairman, President & CEO. “We have grown from a printer with a single facility to a global marketing solutions provider with a seamless, integrated offering that creates more value for all our stakeholders at a time of significant media disruption. Together with LSC Communications, we will create a compelling combination of talent, expertise and client technology to further fuel our Quad 3.0 marketing solutions transformation and strengthen the role of print – a proven and trusted media form in today’s multichannel world.”

Quadracci continued: “We look forward to welcoming LSC Communications’ employees to our team. They will be part of a dynamic, values-based organization that is focused on creating a better way for our clients and our company. From this historic business combination, our clients will benefit from a highly efficient print platform, and the additional cost- and time-saving opportunities generated from enhanced production and distribution efficiencies and flexibility, expanded mailing and logistics services, and strengthened print management services. We are confident in the synergies we will generate from this transaction. We will draw on our deep integration experience to successfully align our operations and create long-term sustainable shareholder value. In addition, with an all-stock transaction, our combined shareholders will benefit from our continued strong and healthy balance sheet.”

Thomas J. Quinlan III, LSC Communications Chairman, Chief Executive Officer and President, said: “Since becoming a standalone public company at the end of 2016, LSC Communications has added critical scale, capabilities and technologies. We have done so through acquisitions and divestitures as we work to strengthen our position as a leading innovator in print and multichannel logistics. We are now taking the next major step in our evolution. Together with Quad, we will be better positioned in the dynamic industry environment to efficiently serve our clients though a broader set of offerings to help meet and manage their needs. We are pleased that LSC Communications’ shareholders will benefit from the significant projected synergies as well as the potential upside enabled by ownership in the combined company. We at LSC Communications are proud of what we have accomplished, and with Quad we look forward to continuing to build on our rich history of providing clients with innovative industry leading solutions.”

TRANSACTION SUMMARY

Under the terms of the agreement, LSC Communications shareholders will receive 0.625 shares of Quad Class A common stock for each LSC Communications share they own, representing approximately 29 percent total economic ownership of the combined company and approximately 11 percent of the vote of the combined company. Based on the closing share prices of both companies on October 30, 2018, the merger consideration represents a premium of 34 percent to LSC Communications shareholders. Quad shareholders will continue to own Class A and Class B shares, representing approximately 71 percent total economic ownership of the combined company and approximately 89 percent total voting power of the combined company. The transaction supports Quad’s long-term strategic vision by preserving the Quadracci Family leadership and voting control in the company.

Quad expects the transaction to be accretive to earnings, excluding non-recurring integration costs. Net synergies are expected to be approximately $135 million, and will be achieved in less than two years, through the elimination of duplicative functions, capacity rationalization, greater operational efficiencies and greater efficiencies in supply chain management that will also benefit our clients.

Joel Quadracci will be Chairman, President and Chief Executive Officer of the combined company. Quad will expand its board of directors to include two members from LSC Communications’ existing board.

The transaction is expected to close in mid-2019, subject to approval by Quad and LSC Communications shareholders, regulatory approval and other customary closing conditions.

The Quadracci Family Voting Trust, holder of approximately 64 percent of the voting power of Quad’s outstanding common stock, has entered into a voting agreement with LSC Communications pursuant to which it will vote in favor of the issuance of shares in connection with the transaction.

The closing of the transaction is not contingent on financing. Quad has secured a financing commitment from JPMorgan Chase Bank, N.A. to refinance Quad’s existing credit facility and LSC Communications’ outstanding debt.

Quad is advised in this transaction by J.P. Morgan Securities LLC, BDT & Company and Foley & Lardner LLP. LSC Communications is advised by BofA Merrill Lynch and Sullivan & Cromwell LLP.

Transaction Conference Call and Quad Third Quarter 2018 Earnings Results

In separate press releases, Quad and LSC announced their respective third quarter and year-to-date 2018 results. In light of today’s transaction announcement, LSC Communications has cancelled its previously announced call for November 1. Quad/Graphics will hold a joint conference call and webcast with LSC Communications today at 8:30 a.m. ET / 7:30 a.m. CT to discuss the business combination. Quad/Graphics also will discuss its third quarter financial results on this call.

Participants can pre-register for today’s conference call and webcast by navigating to http://dpregister.com/10124442. Participants will be given a unique PIN to gain immediate access to the call, bypassing the live operator. Participants may pre-register at any time, including up to and after the call start time.

Alternatively, participants may dial into the conference call at least 10 minutes prior as follows:

• U.S. Toll-Free: 1-877-328-5508

• International Toll: 1-412-317-5424

Presentation materials will be available in the investor relations section of each company’s website at http://investors.qg.com and http://investor.lsccom.com/.

Telephone playback will be available shortly after the conference call ends, accessible as follows:

• U.S. Toll-Free: 1-877-344-7529

• International Toll: 1-412-317-0088

• Replay Access Code: 10124442

The playback will be available until December 1, 2018.