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Why Quad/Graphics Stock Fell and LSC Communications Stock Jumped

By Daniel Sparks – Oct 31, 2018 at 4:17PM

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Buyout news has these two companies moving in opposite directions.

What happened

Shares of Quad/Graphcis (QUAD 0.00%) were slammed on Wednesday. The print and marketing services company's stock finished the trading day down 15.5%.

The decline follows the announcement that the company was acquiring print and digital media solutions company LSC Communications (LKSD). The news sent shares of LSC Communications soaring, up 11.1% by market close.

A colorful chart of stock price movements and volume

Image source: Getty Images.

So what

Quad and LSC said in a joint press release on Wednesday that Quad's board of directors approved a definitive agreement for Quad to acquire LSC in an all-stock transaction valued at about $1.4 billion when including the refinancing of LSC's debt. 

Under terms of the deal, LSC shareholders will receive 0.625 shares of Quad stock for each LSC share they own. Helping explain the jump in LSC's stock price on Wednesday, the value of the deal implied a 34% premium to LSC shares' closing price on Tuesday.

Judging by Quad stock's decline on Wednesday, shareholders aren't very optimistic about the deal. Quad shareholders may be wary of LSC's losses recently. In LSC's just-reported third quarter, the company lost $4 million on a GAAP basis, or $0.12 per share. This was wider than a loss of $3 million in the year-ago quarter.

Now what

Quad CEO Joel Quadracci is optimistic about the deal.

"Together with LSC Communications," Quadracci explained in the two companies' joint press release about the deal, "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."

The companies believe the deal will be accretive to earnings when excluding one-time 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," the companies said in the press release about the deal.

The acquisition is expected to close in the middle of 2019 but is subject to shareholder and regulatory approval.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Quad/Graphics, Inc. Stock Quote
Quad/Graphics, Inc.
$2.94 (0.00%) $0.00
LSC Communications, Inc. Stock Quote
LSC Communications, Inc.

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