Canada's leading media group Quebecor World Inc. yesterday rejected the sweetened takeover bid from rival RR Donnelley & Sons, the world's largest printing service provider.

The proposed cash-and-stock deal was valued at $1.55 billion consisting of $1.135 billion in cash and 30 million Donnelley's outstanding shares worth $415 million, which is $200 million higher compared to the previous bid in May. (See: Donnelley bids $1.35 billion to takeover rival Quebecor)

The Montreal-based Quebecor filed for bankruptcy protection in January 2008 in the US and Canada, with assets of around $500 million and liabilities amounting more than $1 billion. It filed a new restructuring plan, hoping to emerge from bankruptcy by mid-July.

After a series of negotiations with the Chicago-based media giant, Quebecor's independent directors concluded that the bankruptcy protection offered more value to the shareholders at lower risk compared to Donnelley's bid adding that a ''superior recovery'' would result from the restructuring underway that includes a plan for conversion of debt into equity.

Further to the proposed restructuring, the lenders would get new equity shares which are expected to begin trading next month. The company expects to churn out a small profit in 2010.

Donnelley indicated its latest offer was ''the highest and best''. Further to the rejection by Quebecor its previous offer of $1.35 billion, Donnelley added $178 million in cash and $21.6 million in shares pushing up the value to $1.55 billion making it more competitive. The proposal also included taking up of obligations for the defined benefit pension plans.

Donnelley chief executive Thomas J Quinlan said in a letter to Quebecor: "We believe that this proposal is overwhelmingly in the best interests of your creditors when the distributions to creditors resulting from this proposal are compared with the distributions to creditors resulting from the plans."

Quinlan added that the merger would offer attractive investment characteristics for the creditors, compared to the newly-issued securities of a stand-alone restructured company.

Quebecor is a leading publishing house in the Americas and a market leader in advertising inserts and circulars, catalogues, magazines, books, digital media, etc. It is the printer of popular Time and Cosmopolitan magazines, Harry Potter books in Canada apart from owning English and French newspapers and other media in Toronto, Ottawa, Calgary, Winnipeg and Edmonton. The company employs around 20,000 people.

RR Donnelley, a company which is older than a century, is the world's premier full-service provider of print and related services to a variety of customers including publishing, healthcare, insurance, advertising, packaging, retail, technology and financial services. It has more than 60 facilities spread over four continents employing 62,000. The company reported a turnover of $11.6 billion in 2008.

Initially, analysts welcomed the proposed merger of the two printing majors as a positive step towards rationalising the capacities and reducing fierce competition that reflected severely on the profit margins, and expecting that the creditors would jump at the chance to get quick returns with minimum risks.

Since the last offer in about a month, Donnelley stocks appreciated by around 18 per cent to close at $13.93 on Wednesday on the New York Stock Exchange.