Antitrust Law Daily Quad/Graphics and LSC Communications abandon merger following Antitrust Division suit
Tuesday, July 23, 2019

Quad/Graphics and LSC Communications abandon merger following Antitrust Division suit

By Peter Reap, J.D., LL.M.

The magazine, catalog, and book printers have scrapped their plan to merge following the Department of Justice’s suit last month to block it.

Quad/Graphics Inc. and LSC Communications Inc. have abandoned their planned merger following its suit filed on June 20, 2019, to block the merger, the Department of Justice announced today. The Justice Department’s Antitrust Division alleged that the combination of the only two significant providers of magazine, catalog, and book printing services would deny publishers and retailers throughout the country the benefits of competition that has spurred lower prices, improved quality, and greater printing output. The case was scheduled for trial in the U.S. District Court in Chicago on Nov. 14, 2019 (U.S. v. Quad/Graphics, Inc., Case No. 1:19-cv-04153).

Reactions. "This result is a victory for American consumers and publishers, and a testament to the Division’s resolve to enforce the antitrust laws," said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. "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."

In a statement, Quad Chairman, President & CEO Joel Quadracci said: "We are disappointed by the Justice Department’s decision to sue to block the transaction and believe that the lawsuit does not reflect the dynamics of print today and the competitive effect of digital media. However, rather than devote time and resources to prolonged litigation, we are choosing to focus on ensuring that our clients benefit from our Quad 3.0 growth strategy through exciting innovations in printing and integrated multichannel marketing solutions that reduce complexity, increase efficiencies and enhance marketing spend effectiveness. We believe this focus is in the best long-term interest of all our stakeholders."

Complaint. According to the Antitrust Division’s complaint, Quad and LSC are the "only two significant providers of magazine, catalog, and book printing services" in the U.S., and each company views the other as its top competitor. Alleging that Quad’s acquisition of LSC would violate the Clayton Act, the complaint maintained that allowing the proposed acquisition would significantly increase the concentration of already concentrated markets. Quad’s proposed acquisition of LSC would likely result in: a single firm with a significant share of each of the pertinent markets, higher prices in those markets, and reduced quality of printing services and less innovation in those markets.

Quad’s proposed acquisition of LSC would put an end to the "price war" between the two companies, allowing Quad to "dominate the magazine, catalog, and book printing markets," the complaint contended. Moreover, the complaint included quotation references to internal documents from the two companies that underscored the "intense head-to-head competition" between Quad and LSC that "has directly benefitted their customers through lower prices and better-quality services." Moreover, the proposed acquisition of LSC "creates a presumption that the acquisition likely substantially lessens competition."

Companies and services. The magazine, catalog, and book printing services offered by Quad and LSC include the printing, finishing, and distribution of publications to newsstands, retail facilities, or the postal service for delivery to consumers’ homes. Quad and LSC are by far the most significant integrated printers in the United States.

Quad/Graphics Inc. is a Wisconsin corporation headquartered in Sussex, Wisconsin. It offers a variety of printing services, including magazine, catalog, and book printing services, to publishers across the country. In 2018, Quad’s revenues were approximately $4.2 billion. LSC Communications Inc. is a Delaware corporation headquartered in Chicago. In 2016, it was spun off from printing firm R.R. Donnelley. LSC offers a similar set of magazine, catalog, and book printing services as Quad. In 2018, LSC’s revenues were approximately $3.8 billion.

Companies: Quad/Graphics Inc.; LSC Communications Inc.

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