Vertis, rival to try again to merge

Bankruptcy plan would cut joint debt by $1 billion

May 23, 2008|By Hanah Cho | Hanah Cho,SUN REPORTER

Vertis Communications Inc. said yesterday that it would merge with one of its largest competitors in the second attempt to combine the two debt-laden companies amid declines in the advertising and printing industries.

The Baltimore company's plans last year to buy Brentwood, Tenn.-based American Color Graphics failed, but it said the two firms will now merge through a so-called prepackaged bankruptcy proceeding, which would reduce their combined debt by nearly $1 billion.

The two companies said the deal would give them a larger and more competitive foothold in the industry. Their earlier deal collapsed in October when only a certain number of American Color bondholders agreed to an exchange offer for their outstanding notes.

Vertis, which develops direct-marketing materials and advertising circulars, has been burdened by more than $1 billion in debt from a 1999 leveraged buyout that took the company private. The buyout was engineered by two private equity firms, Thomas H. Lee Co. and Evercore Partners.

Most recently, Vertis has been hurt by declining sales and slumping profits because of increased competition from other media, including the Internet.

Vertis lost $327 million last year. This week it reported a net loss of $41 million for the three months that ended March 31, up from $25 million in the corresponding period a year ago. Vertis hired a financial adviser this year to help it reorganize its capital structure, possibly through a merger.

American Color provides similar products and pre-media services, such as page layout, design and content management.

In the three months that ended Dec. 31, the company lost $7 million, compared with a loss of $4.5 million in the year-ago period.

Vertis and American Color said more than two-thirds of their senior creditors have agreed to exchange their bonds for $550 million in new notes and a substantial ownership stake in the combined company. That would reduce the combined company's debt by $725 million, excluding transaction fees and expenses.

In addition, Vertis' obligation to repay $240 million in mezzanine notes would be erased after the transaction closes. Vertis shareholders and mezzanine note holders support the deal, the company said.

In a prepackaged bankruptcy, companies prepare a reorganization plan approved by creditors and stockholders before filing for Chapter 11, shortening the process. The procedure still requires a bankruptcy judge's approval.

Under the plan, Vertis and American Color said suppliers, customers and employees would continue to receive payments.

Vertis Chief Executive Officer Mike DuBose would become chairman and chief executive of the combined company. Steve Dyott, chairman and chief executive of American Color, would remain to help with the integration.

The two firms expect to begin soliciting consent from creditors for their reorganization plan in about 20 days. Once approvals are received, the companies would begin prepackaged bankruptcy proceedings.

If the merger closes, which is expected in late summer, American Color would become a subsidiary of Vertis.

hanah.cho@baltsun.com

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