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Financial woes afflicting Quebecor printing company

Canadian printing company Quebecor World, which has an 850-job plant in Depew, is in a financial crunch that has gutted its stock value and started talk of a buyout.

The Montreal-based company was forced to cancel a refinacing plan to replace $760 million in debt on Nov. 19. Since the beginning of the month its stock has plunged 75 percent, ending at $2.32 on Wednesday.

Investors fear that the cash crunch might trigger the conversion of $175 million in preferred shares into common stock in March, analysts say. That would dilute the stock's value. Quebecor World suspended dividends on certain classes of preferred stock on Monday.

"In the near term, management will need to explore future refinancing opportunities, as well as other methods to raise cash," Standard & Poor's credit analysts said in a report. S&P analysts downgraded the long-term corporate rating to B- from B. Further downgrades are possible if the company misses preferred dividend payments due Saturday.

Parent company Quebecor Inc. in Toronto, which owns a controlling stake in the commercial printing company, said it will "cooperate in the exploration of other alternatives" to the canceled financing plan.

So far, the problems haven't been felt at the printing plant on George Urban Boulevard, a major local employer with about 850 production jobs.

"They just made major investments here," said Bob Mamon, president of the Graphic Communications Conference-International Brotherhood of Teamsters Local 17B in Depew.

"I think we're pretty well set," Mamon said.

None of Local 17B's 350 members are on layoff, he said, and the plant's total production workforce appears stable.

In a statement, the company said it will consider issuing new equity and debt "when conditions are more favorable." Local officials referred questions to headquarters.

Quebecor announced in March that it had installed new presses worth $12 million for paperback book printing at Depew. The investment helped win a five-year contract with major customer Harlequin Enterprises Ltd. Quebecor prints and binds 145 million paperbacks a year for the publisher of romance novels.

Local production workers agreed to a cost-cutting labor contract in January designed to preserve jobs, Mamon said. The four-year agreement freezes wages, raises worker contributions to health coverage and switches from a defined-benefit pension to a 401k, he said.

The investment in new presses was part of a technology upgrade across the company that has helped drain Quebecor of cash, analysts say. However, the prospects for the longer term are brighter.

"The company's recent completion of a significant equipment retooling program should positively affect profitability and cash flow in 2008," the S&P said in a report by analyst Lori Harris.

The printing industry's fundamental prospects continue to be dim, with electronic distribution being substituted for some print production, contributing to downward pressure on prices. Quebecor World's sales were down 7 percent for the first nine months of the year, as prices come under pressure and printing volume declines.

Under a sale of the company, the labor contract would transfer to a new employer, Mamon said. "We've been sold several times; the contract always comes over," he said.

Quebecor World acquired the Depew plant in 1993 with its purchase of Arcata Graphics. In 2006, it had sales of $6.1 billion and a net loss of $4.2 million. Parent Quebecor Inc. also owns a media division, with newspapers, video stores and broadcasters concentrated in Canada.


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