Vertis Holdings Inc.'s third trip through Chapter 11 neared a successful close Thursday as a Delaware bankruptcy judge approved the sale of the Baltimore-based advertiser to rival Quad/Graphics Inc. for $258.5 million.
A provider of advertising inserts and direct marketing, as well as a veteran of previous bankruptcies in 2008 and 2010, Vertis and its seven subsidiaries filed for Chapter 11 in October after struggling with a host of difficulties including the continued move away from print, recent customer losses and significant secured indebtedness, the company said.
Vertis started evaluating the best way out of its financial predicament months prior to filing, attorney Zachary H. Smith of Cadwalader Wickersham & Taft LLP told the court, a "comprehensive and exhaustive" process during which the company determined a sale was its best option and Quad the best suitor.
Approval of the sale order was fundamental to the successful completion of the process, Smith said, as it would meet a "major milestone" set out in both the purchase and debtor-in-possession financing agreements.
U.S. Bankruptcy Judge Christopher S. Sontchi, who oversaw Vertis' first bankruptcy in 2008, signed off on the sale, saying the evidence presented during the course of the case demonstrated the sale was appropriate.
Vertis sought court protection Oct. 10 with a prepackaged Chapter 11 deal that lined up Quad as a stalking-horse bidder and a $150 million DIP facility furnished by prepetition lenders led by GE Capital Finance.
Wisconsin-based Quad had been tapped as a stalking horse during a prepetition bidding process, Smith said, and it faced no competition during bankruptcy as the Section 363 auction set for earlier this month was scrapped when no other qualified offers were received.
The deal faces no federal antitrust hurdles, Smith said, as the Hart-Scott-Rodino approval process has been completed.
Vertis had resolved eight of the nine sale objections prior to the hearing, attorney Jason M. Madron of Richards Layton & Finger PA told the court, with the lone remaining dissent coming from Riverside Acquisition Group LLC, a company disputing the ownership of certain intellectual property included in the sale.
The matter is pending in New Jersey court, he said, and Riverside launched an adversary suit in Delaware on Wednesday as well.
Judge Sontchi overruled the objection, stating a declaration of ownership was not necessary prior to the closing and Riverside's rights would not be negatively affected by the Quad deal.
"You're better off with a sale," the judge told Riverside's counsel, "as your client would have claims against a solvent company."
A host of cure objections lodged by companies with contracts with the debtor were either resolved or pushed back to a Jan. 23 hearing. Quad must make a final determination on Vertis' contracts five days prior to the closing, tentatively set for Jan. 14, so most of the cure objections should be moot by the hearing, Madron said
The deal still faces one significant hurdle, a closing condition in the purchase agreement requires Vertis to effectively retain 90 percent of its prepetition customer base. Quad can walk away from the deal or demand a price reduction if that target is not met, according to court documents.
If the figure is met and the sale to Quad closes, a group of roughly 100 Vertis employees will share some $4.3 million in bonus money under a key employee incentive plan approved by the court Nov. 27.
Vertis first filed for bankruptcy in Delaware back in 2008 to facilitate the acquisition of American Color Graphics Inc. and headed to a New York court in 2010 to restructure roughly $700 million in debt. The company and its subsidiaries sought court protection again Oct. 10, listing $837.8 million in assets and liabilities of approximately $814 million.
Vertis is represented by Peter M. Friedman, Christopher Updike, John J. Rapisardi, Nicole Stephansen and Zachary H. Smith of Cadwalader Wickersham & Taft LLP and Mark D. Collins, Jason M. Madron and Lee E. Kaufman of Richards Layton & Finger PA.
Riverside is represented by Johnna M. Darby of The Darby Law Firm LLC and Gary N. Elkind of Elkind & DiMento PA.
The case is In re: Vertis Holdings Inc., case number 1:12-bk-12821, in the U.S. Bankruptcy Court for the District of Delaware.
Originally published in Law360, Wilmington (December 06, 2012, 7:57 PM ET)
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