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MONTREAL - Three weeks after Montreal printer Quebecor World Inc. vaulted out of bankruptcy protection July 21 under the new name Worldcolor Press Inc., company chairman Mark Angelson had lunch with a key rival.

Quebecor, printer of magazines that include Sports Illustrated, had just rejected a US$1.5-billion takeover offer from R.R. Donnelley & Sons. But Mr. Angelson, pushed by Catalyst Capital Group Inc. and other Quebecor creditors determined to trigger more industry consolidation, was keen to explore other options.

Mr. Angelson dined with Joel Quadracci, chairman and chief executive of Wisconsinbased Quad/Graphics Inc., a privately held company that prints GQ and Newsweek magazines.

Quad had several things that Catalyst, which led Worldcolor's restructuring and forced the company to make major operational changes, coveted in a partner. It is big and profitable, with a 17.6% pre-tax profit margin over 12-months ending Sept. 30, 2009. It has a deep management team. Perhaps most important, it has what Mr. Angelson describes as industry-leading technology and automation.

The result of that lunch and subsequent talks is the takeover deal confirmed yesterday. Quad will take over Worldcolor in a deal that creates the second-largest printing company in North America-- with 29,500 workers, 66 plants on three continents and combined revenue of about US$5-billion.

Worldcolor shareholders will get about 40% of a new combined company that plans to trade on a U.S. exchange. JPMorgan Chase and U.S. Bank have commited US$1.2-billion to finance the transaction.

"I've got a great big grin on my face," Mr. Angelson told analysts on a conference call. "This is a good deal."

The key to the takeover is the estimated US$225-million in pre-tax annualized synergies the companies think they can generate, Mr. Angelson said, adding the number is a conservative estimate.

Worldcolor shares gained 26% in trading on the Toronto Stock Exchange yesterday, to close at $12.65.

Observers said there remains a lot of uncertainty surrounding the takeover for Worldcolor investors. Chiefly, that's because there is no firm purchase price at this point for their shares.

Under the terms of the agreement, Quad will register its Class A common stock on a U.S. stock exchange. When the sale closes, each Worldcolor common share outstanding will be converted through a share exchange ratio into Class A common shares of the new combined printer. Worldcolor investors will get 40% of the shares and Quad investors get 60% but the share exchange ratio will be set only just before closing because it depends on how many preferred shares will be converted into Worldcolor stock and how many Worldcolor warrants are exercised.

"Shareholders simply don't know exactly what they're getting at this point," said one analyst.

"I think that leaves the door open for any counter-offer that has a concrete bid on the table. Saying 'I will pay you $14 in cash,' for example, is a lot more sure than what seems to be on the table here. The bottom line is that this company is in play and so it should attract a private market multiple."

Those familiar with the transaction, however, say that Quad's offer is in fact worth in the neighbourhood of $14 to $16 a share -- better than both of Donnelley's previous unsolicited offers. The combined company would be worth even more than that, they said, and rival bidders will be hard-pressed to steal Worldcolor away from Quad.

Officials with R.R. Donnelley did not return calls seeking comment yesterday.

Quad and Worldcolor said they agreed not to solicit other offers. But they said they are free to consider superior proposals from third parties "in certain circumstances."

Both companies have the right to match other bids. A breakup fee of US$40-million is in place.

"I can assure you that the directors of this company were meticulous in the discharge of their fiduciary duties about exploring alternatives to this transaction, including [staying independent] and conversations with others," Mr. Angelson said.

The companies declined to say if they would shut down any factories or lay off employees.

Commercial printing remains a highly fragmented industry, with the 400 largest U.S. companies holding less than 30% market share, according to a joint release by Quad and Worldcolor. There were 30,000 commercial printers in the United States as of 2008.

For Worldcolor, a takeover by Quad would mark the final chapter for what was once one of Quebec's corporate success stories. The deal is expected to close this summer.

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