Vertis calls off deal for rival

Printing, ad firm says it is open to further talks

October 02, 2007|By Hanah Cho | Hanah Cho,SUN REPORTER

Vertis Communications, the Baltimore printing and advertising company trying to turn around its business amid an industrywide decline, called off a proposed deal yesterday to acquire one of its largest competitors.

But Vertis said it was willing to continue further discussions with American Color Graphics in Brentwood, Tenn., which had cautioned that it could face a shortage of cash if the merger does not go through.

Vertis executives have said the deal could help them better compete in an industry that has seen its profits fall steadily in recent years.

One analyst was optimistic that the proposed deal was not dead yet. "I still think it has a chance to go through," said Mary Ross Gilbert, managing director and director of fixed-income research at Imperial Capital, a brokerage and investment bank in Los Angeles. "They indicated that they are open for further discussions."

In July, Vertis announced that it signed a letter of intent to merge with American Color. Since then, the two companies several times have extended the deadline to sign a final merger agreement.

The two privately held companies announced last month that certain American Color bondholders had agreed to an exchange offer for their outstanding notes, a key element necessary for the deal to happen. That financial proposal expired Saturday, according to Vertis.

Vertis said in a prepared statement yesterday that it "conveyed an offer with a deadline of midnight on Sept. 30, 2007, and received no affirmative response.

"Vertis therefore terminated the letter of intent, but is prepared to entertain further discussions."

Vertis is one of the largest providers of advertising products and services, including coupons, television guides and Sunday comics sections inserted into newspapers. American Color provides similar products and services.

American Color spokeswoman Wendy Martin would not comment on the Vertis announcement yesterday.

The two debt-laden companies are operating in a tough industry environment in which traditional print advertising is reaching fewer people.

Vertis chief executive Michael DuBose has said the merger would increase operational and cost efficiencies. Company officials would not comment beyond the prepared statement yesterday.

Demand for both companies' products has been falling as the news audience and advertisers turn to alternative media, including the Internet. As a result, excess capacity in printing services industrywide has dragged down prices and volume, cutting into profits.

Both companies are struggling to turn around their poor financial performance, reporting losses for the three months that ended June 30.

Vertis said it lost $19.7 million, compared with a loss of $5 million in the corresponding period last year. With 5,800 employees, including 150 in Maryland, Vertis has 38 production facilities across the country. It reported a net loss of $26.2 million on revenue of $1.47 billion last year.

American Color's net loss widened during the same three-month period, to $6.7 million from $2.7 million. It has 2,060 employees, with eight print facilities in Canada and the United States, including one in Belcamp. American Color lost $21 million on revenue of $445 million for the fiscal year that ended March 31.

If the merger with Vertis is not completed, American Color would have to take steps to meet certain liquidity requirements by Nov. 29, including paying its next interest payment on a certain debt, documents filed with the Securities and Exchange Commission show.

Such steps include seeking waivers or amendments from lenders, taking on additional debt, selling the company to another party or selling assets or operations, the SEC documents say.

hanah.cho@baltsun.com

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