Valassis To Buy ADVO — Will Serve 20,000 Advertisers

By: Jennifer Saba

Valassis announced this morning it will acquire ADVO for $1.3 billion — including $125 million in debt — or $37 per share in cash.

The combined company will serve 20,000 advertisers across the world including 94 or the top 100 advertisers in the United States by delivering targeted marketing through direct mail and newspapers.

ADVO ?s shared mail distribution business penetrates up to 90% of U.S. homes ? or 114 million households. Valassis reaches 60 million households through weekly newspaper distribution.

“Together, Valassis and ADVO will be well positioned for growth as a more diversified company with complementary capabilities, product offerings and clients,” Alan Schultz, Valassis chairman, president, and CEO, said in a statement. “This combination is a first in the media services industry and uniquely positions us to capture growth by anticipating the needs of the marketplace and evolving to meet them.”

Valassis said it will save $40 million in costs from the merger and projects 2007 EBITDA to fall between $305 and $315 million.

It will continue to be based in Livonia, Mich., but plans to maintain “substantial” offices in Windsor, Conn., where ADVO is currently based. Schultz will remain chairman, president, and CEO. Scott Harding, CEO of ADVO, will serve as a consultant to the combined company.

“Advertisers’ needs are becoming increasingly sophisticated and require solutions that are both scalable and customized,” said Harding in a statement. “Our new company will deliver on these requirements with an unrivaled portfolio of products, leadership across multiple media platforms, proven targeting expertise and unmatched reach. In today’s media world, that is an undeniably attractive combination.”

In a note released this morning, Prudential Equity Research analyst Steven Barlow knocked down the rating on Valassis from “overweight” to “underperform.”

“[Valassis] has talked about enhancing shareholder value which we had hoped would be a sale of the company,” he wrote. “We have not been impressed with [ADVO’s] revenue growth rate so we don’t see how that accelerates [Valassis’] organic growth as a combined company.”

Valassis’ main competitor in the free standing insert business is News America, which has been pricing aggressively, Barlow notes.

The transaction, which has to be approved by ADVO shareholders, is expected to close in three to four months.

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