Quad/Graphics to Acquire Mexican Printing Assets From and Sell Canadian Assets to Transcontinental

Quad/Graphics Inc. and Transcontinental Inc. have announced that they have entered into a definitive agreement whereby Quad/Graphics will acquire Transcontinental's Mexican operations and sell its Canadian operations to Transcontinental (with the exception of Quad/Graphics' Vancouver, BC, facility). Further, Quad/Graphics will receive a portion of Transcontinental's Canadian book printing business that is produced for US export.

The transactions have been approved by the boards of directors of both companies and are subject to customary regulatory clearances, including under the Mexican Federal Law on Economic Competition and the Canadian Competition Act. The definitive agreement allows for the transactions to close independently of each other, but both are expected to close in the fall of 2011. Essentially, these transactions represent an exchange of assets.

"This agreement is a win-win for Quad/Graphics and Transcontinental and one that will create long-term value for both companies," said Joel Quadracci, Chairman, President & Chief Executive Officer of Quad/Graphics. "We have long recognized the high growth potential in Mexico and South America. This acquisition supports our strategy to grow profitably in geographies and segments where we can be a market leader through a diverse product offering, and a superior and efficient operating platform. This acquisition expands on our existing presence in Mexico and is expected to provide solid synergy opportunities and position us to achieve our platform, earnings and market-leadership objectives."

Transcontinental currently employs approximately 900 people among its three facilities in Azcapotzalco, Toluca and Xochimilco, Mexico, and forecasts to generate approximately US$70 million of revenues for fiscal year 2011. "By acquiring Transcontinental's Mexican assets, we will become the leading producer of magazines, retail inserts and catalogs in Mexico," said Tony Scaringi, newly named President & General Manager of Latin America. "We will roll out Quad/Graphics' long-standing best practices in Lean Enterprise, safety and technical education to the expanded platform, further enhancing our position as the sustainable, value-added print producer for all of Latin America."

Added Quadracci: "Through this transaction, we will be redeploying our capital to the emerging market in Mexico, which has a growing middle class and a population more than three times the size of Canada. To drive growth in Canada would have required a substantial capital investment. Canada is a lower growth, highly competitive print market with excess capacity. That market reality, combined with declining revenues and earnings, and along with the underfunded pension obligations of the Canadian business, makes Canada a less-compelling long-term value creation opportunity for us compared to Mexico."

Given the synergy opportunities from integrating operations in Mexico as well as the higher, more profitable growth the company anticipates there, Quad/Graphics expects this transaction will create positive incremental Adjusted EBITDA within 12 to 24 months following the close of the transaction.

In the transaction, Transcontinental will also transfer to Quad/Graphics its black and white book printing business destined for US export, which represents approximately US$25 million in revenues.

As part of the Canadian transaction, Transcontinental will assume retirement pension and post-retirement obligations approximating US$75 million and acquire seven Quad/Graphics facilities (consisting of six printing plants and a premedia operation) that employ approximately 1,500 people and are forecasted to generate approximately US$310 million of revenues in fiscal year 2011. The facilities are located in Aurora, Concord and Markham (Toronto), Ontario; LaSalle and Montreal, Québec; Edmonton, Alberta; and Dartmouth, Nova Scotia.

François Olivier, President and Chief Executive Officer of Transcontinental, said: "The acquisition of the Canadian assets of Quad/Graphics is in line with our strategy to strengthen our more traditional print assets in Canada and is key to maintain a solid business going forward given the competitive and industry dynamics. It will allow us to leverage the over $700 million in investments we made to our printing platform over the last several years, it will generate significant synergies and it will better equip us to face the new challenges in our industry."

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