RRD Board Agrees to Chatham Acquisition Offer; Will Terminate $2.1B Agreement with Atlas

It appears — for now — that private equity firm Chatham Asset Management has the upper hand in gaining control of North America's largest commercial printing company.

After Chatham set 5 p.m. ET as the deadline for a positive response to its latest, sweetened offer, RR Donnelley & Sons (RRD) announced Dec. 1, 2021, that its board of directors unanimously determined that the unsolicited proposal from Chatham to acquire all of the common stock of RRD not already owned by Chatham, for $10.25 per share in cash, constitutes a “Superior Proposal” in comparison to the $8.52 per share in cash acquisition agreement RRD had signed with Atlas Holdings on Nov. 3, 2021.

As a result, Chicago-based RRD said it has subsequently notified Atlas that it intends to terminate its existing merger agreement with Atlas in order to enter into a definitive agreement with Chatham.

It may not be a done deal, though. Pursuant to the $2.1 billion Atlas merger agreement, the private equity fund, which already owns LSC Communications, Finch Paper, and several other industry-related companies, now has the opportunity  — through Dec. 7, 2021 — to negotiate a higher offer than Chatham's. 

Under the terms of the Atlas merger agreement, RRD is required to pay a $20 million termination fee and expense reimbursement to Atlas if RRD ultimately enters into a definitive deal with another party. Chatham has already agreed to pay the termination fee and expense reimbursement to Atlas on RRD’s behalf in such an event. However, RRD would be required to repay these fees to Chatham if its acquisition agreement with Chatham doesn't become finalized.

What About the Unnamed Strategic Party?

In its press release, RRD also didn't mention the $10 per share offer it said it received from an unnamed "Strategic Party" during the "Go-Shop" period, whereby RRD could field other offers. Nor was there any mention of the pending lawsuit that Chatham filed last month in the Delaware Court of Chancery against both RRD and Atlas, seeking the court to declare the Atlas termination fee and certain other provisions of the Atlas merger agreement unenforceable, to cause the company to redeem the poison pill, and to waive certain provisions of Delaware law that could prevent Chatham from taking its offer directly to stockholders through a third-party tender offer.

Chatham Package Includes Debt Reduction

Aside from Chatham's $10.25 per share in cash offer and its willingness to pay the $20 million termination and expense reimbursement fees that would be due to Atlas Holdings, RRD's largest bond holder and 14.9% common stock shareholder also pointed to the debt reduction benefits of its overall acquisition offer. Assuming all $787.3 million of RRD's outstanding notes —  which represents approximately 56.7% of RRD’s outstanding notes, including more than 50% of the company’s 6.125% senior secured notes due November 2026 — are subordinated by Chatham,  RRD will reduce its annual interest expense by approximately $60.4 million.

As it currently stands, Chatham certainly has the upper hand in acquiring RRD, and the ball is now in Atlas Holdings' court to determine if it wants to counter by Monday Dec 7.