No cash is being exchanged in the transaction, which will see Transcontinental acquire three plants in Ontario, two in Quebec, one in Nova Scotia and one in Alberta, along with 1,500 employees.

The deal leaves Quad/Graphics will just one remaining facility in Canada, a Vancouver printing plant, although the Sussex, Wisconsin-based company will also receive, as part of the deal, a piece of Transcontinental's black-and-white book printing business for export to the US.

In a call with analysts, Transcontinental CEO Francois Olivier suggested fierce competition within the printing industry prompted not only the move to add the seven facilities in Canada but also the decision to divest its Mexican operations.  

"The print markets in general have suffered from over-capacity in recent years with the increase of digital and web communication and the technological advances in new printing presses," he added. "Moreover the relatively weak economic environment has only highlighted the problem."

Olivier went on to note that US printers are now entering the Canadian market driven by over capacity in their home marketplace and well as the opportunity to piggyback on their US retail customers expanding to Canada. "The current level of exchange rate is only helping their expansion here," he added "This transaction will allow us to compete more effectively - it will allow us to further leverage the over $700m investment we have made in our printing platform over the last several years."

The asset swap is tentatively set to take place this fall, pending approval from both Canadian and Mexican regulators and Olivier expressed confidence the asset swap will not run afoul of anti-competition rules.

"Overall in Canada, there are 4,000 printers; there are more than 150 printers with 100 employees or more and we have large US printers entering Canada in the last year," he said. "We don't believe that in any segment or in the industry overall that we will have a problem, because there's a lot of competition in the Canadian market."

But Transcontinental is under no illusion there are buying a growing business. Last year, the seven facilities accounted for US$310m in revenue, and Olivier said, "It's declining and it's been declining. We don't expect 2012 volume to be that $310m."

Olivier added there is a little bit of crossover in terms of customers, but noted they're also picking up a lot of customers unique to Quad/Graphics. "It should be a positive for their customers, joining the two networks together," he said. "From an equipment standpoint, we have been investing quite a bit in the last three or four years and their investment was a lot less."

He added Transcontinental expects to achieve $40m in synergies from gaining the Quad/Graphics assets. The assets in Canada were picked up by Quad/Graphics when it purchased World Color Press, formerly known as Quebecor World, early last year.  

For Quad/Graphics, the real benefit comes from the potential growth of the Mexican printing market. Quad/Graphics did not respond to interview requests from PrintWeek, but in a statement, chairman, president and CEO Joel Quadracci said: "To drive growth in the highly competitive Canadian marketplace would have required a substantial capital investment. Overall, Mexico is a more compelling long-term value creation opportunity for us compared to Canada, and through this acquisition we expect to achieve solid synergies and realize our platform, earnings and market-leadership objectives."

Transcontinental currently has 900 employees at its facilities in Azcapotzalco, Toluca and Xochimilco, Mexico, and the three plants account for about US$70m in annual revenue. "By acquiring Transcontinental's Mexican assets, we will become the leading producer of magazines, retail inserts and catalogs in Mexico," noted Tony Scaringi, who last week was named Quad/Graphics President/General Manager for Latin America.