Baltimore-based Vertis Holdings Inc., at one time the largest U.S. producer of advertising inserts in newspapers, plans to sell itself to a Wisconsin printing company for $258.5 million through an auction in U.S. Bankruptcy Court.
Vertis filed for Chapter 11 protection in U.S. Bankruptcy Court in Delaware Wednesday. It also sought court approval to sell its assets to Quad/Graphics, which produces retail advertising inserts and direct marketing and in-store marketing campaigns.
It is the third bankruptcy-law filing in five years for Vertis, which also sought the court's protection to reorganize its finances in 2008 and 2010.
In a joint statement, the companies said the sale should benefit clients and the 5,000 employees of Vertis, which has $1.1 billion in estimated fiscal 2012 revenues. Headquartered on West Pratt Street, where it employs 75 people, the company also has 25 manufacturing plants and sales offices throughout the United States and Canada.
Court documents show Vertis has $500 million to $1 billion in liabilities and a similar range in assets. The company said it had 25,001 to 50,000 creditors.
Vertis said it accepted the offer from Quad/Graphics after reviewing opportunities for its businesses over the past several months, including bids from potential investors. The announcement follows one in April, when the company said it had reached an agreement with lenders to modify the terms of its loans to give Vertis more flexibility.
"The offer from Quad/Graphics was the most compelling proposal we received because it ensures continuity for clients and the greatest number of opportunities for our employees while also maximizing value for our stakeholders," said Vertis CEO Gerald Sokol Jr. in the joint statement.
Sokol said the merger should benefit clients by increasing returns on their marketing investments.
Quad/Graphics CEO and Chairman Joel Quadracci called the merger a natural and strategic fit.
"The complementary capabilities of our two businesses in retail advertising inserts, direct marketing and in-store marketing will further strengthen and expand our offerings, and will allow us to even better serve our clients, achieve additional efficiencies and build long-term value for our shareholders," Quadracci said in the statement.
Quad/Graphics said it would finance the acquisition with cash on hand and by drawing on its revolving credit facility.
An analyst's report on Thursday said Vertis' portfolio would be complementary, adding retail inserts, direct-mail and in-store marketing business to Quad, the world's second-largest printer.
"While we expect some client attrition around every acquisition, we feel the vast majority of [Vertis'] 3,000 clients will be retained," wrote Daniel R. Leben, analyst with Baird Equity Research, in his report.
Leben said that most of Quad's revenues are tied to print advertising and warned that "[a] rapid and permanent shift towards digital/online communications would be a major disrupter to Quad's current business model."
Vertis said it filed the bankruptcy reorganization to help facilitate the sale. With Quad/Graphics' offer, the firm becomes the lead, or "stalking horse," bidder. As part of the auction process, competing bids will be evaluated to ensure Vertis gets the highest and best offer.
Vertis and Quad/Graphics said they expect the court to approve the sale during the fourth quarter of 2012, enabling it to close in the first quarter of next year.
Among Vertis' top creditors are Resolute Forest Products, owed $19.4 million; Sun Chemical Corp., $18.6 million; Catalyst Paper, $5 million; Valassis Direct Mail, $2.76 million; OneMain Financial, $1.4 million; and NewPage Corp., $1.19 million.
Chapter 11 allows a company to reorganize its finances while keeping creditors at bay.
In 2010, Vertis filed for voluntary bankruptcy-law protection in an effort to reduce its debt. In that "prepackaged" bankruptcy plan, Vertis and its creditors already had negotiated a reorganization strategy, which included $600 million in financing from Morgan Stanley and GE Capital.
Vertis also completed a similar prepackaged bankruptcy-law filing in 2008. At that time it acquired privately held American Color Graphics, another debt-laden company struggling to survive changes in the printing and advertising industry brought about by declining newspaper circulation and the rise of Internet-based advertising.
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