Valassis to buy ADVO at lower price; suits dropped

By Reuters  |  Posted 12-20-2006

NEW YORK (Reuters) - Valassis Communications Inc. [VCI.N] said on Tuesday it would buy fellow direct marketer ADVO Inc. [AD.N] for $1.08 billion, an 11 percent discount to the original price in a deal ending a four-month legal battle.

Valassis, a newspaper insert distributor based in Livonia, Michigan, will pay $33 a share in cash for ADVO, below the $37 a share it agreed to pay when the two companies first struck a deal. Including $125 million in ADVO debt, the deal is valued at about $1.2 billion.

Valassis sued ADVO to void the original deal in late August, accusing ADVO management of misrepresenting the company's financial health. ADVO, a direct mail advertiser based in Windsor, Connecticut, filed a countersuit, saying Valassis had no right to back out of the agreement.

As part of Tuesday's deal, the companies have agreed to dismiss their litigation in the Court of Chancery for New Castle County, Delaware. Valassis shares rose as much as 15 percent in trade on the New York Stock Exchange.

Valassis said that in preparing for the lawsuit it "determined that the evidence will not support the conclusion that ADVO or any of its directors, officers, agents or representatives engaged in any fraud or other misconduct in connection with the parties' entry into their original merger agreement."

Valassis previously charged that ADVO had provided "materially false financial" data and withheld important information when it knew operating results would fall short of forecasts.

The companies expect to close the deal during the first quarter of 2007.

"We are pleased to have reached this amended agreement with ADVO and put the litigation behind us," Valassis Chief Executive Alan Schultz said in a statement. "As we have maintained since the execution of the original agreement, we believe in the strategic value of an ADVO and Valassis combination and look forward to becoming a more diversified company with the benefits it will bring."

Valassis initially pursued ADVO in hopes a deal would curb its reliance on newspaper inserts and let it take advantage of growing demand for targeted advertising.

ADVO's shared mail distribution business potentially reaches up to 114 million households, or 90 percent of U.S. homes, while Valassis' weekly newspaper distribution reaches over 60 million households. The combined company will have 7,900 employees with operations in nine countries.

Shares of Valassis were up $1.22, or 8.5 percent, at $15.50 in afternoon trading, after going as high as $16.43. ADVO shares were down 43 cents, or 1.3 percent, at $32.57.