Valassis Sues ADVO for Fraud and Rescinds Offer

By: E&P Staff and The Associated Press Valassis is rescinding its $1.3 billion offer to acquire ADVO and is suing the direct mail company for fraud, Valassis announced on Wednesday.

The Livonia, Mich.-based marketing company alleges that ADVO executives "materially misrepresented the financial health of the company and failed to reveal internal control deficiencies," according to a statement.

"We believe that taking this action is in the best interest of our shareholders," Alan Schultz, Valassis chairman, president, and CEO, said in a statement. "ADVO left us with no choice. The pertinent information we received was erroneous, projections were grossly inaccurate and we believe we were the victims of fraud."

ADVO said on Wednesday that while the company has not fully reviewed the lawsuit, "ADVO believes it is baseless and without merit," according to a statement. "ADVO can only surmise that Valassis' action is merely a smokescreen to hide the fact that Valassis is suffering from an extreme case of buyer's remorse."

ADVO said it plans to defend itself against Valassis' allegations and is committed to the merger agreement.

Valassis said its action in Delaware Chancery Court was based on allegations that Advo management misrepresented the financial health of the company and failed to reveal internal control deficiencies.

Windsor, Conn.-based Advo denied wrongdoing and said it intended to enforce the merger agreement announced in early July.

Valassis also seeks an undisclosed amount of damages from Advo, company spokesman Andy Hopson said.

Shares of Valassis climbed $1.74, or 8.3 percent, to $22.75 in after-hours trading Wednesday after closing earlier up 22 cents at $21.01 on the New York Stock Exchange. Advo shares dropped $17.60, or 48 percent, to $19.20 in after-hours activity after closing the regular NYSE session unchanged at $36.80.

Advo said in a statement that the company had not yet fully reviewed the lawsuit but believes "it is baseless and without merit."

Government regulators had approved the merger but Advo directors had not given final approval, Hopson said.

Valassis announced last month that it was acquiring outstanding shares of Advo for $37 each. The combined company was expected to serve about 20,000 advertisers, including 94 of the top 100 in the U.S., with direct mail, newspaper inserts, coupon fliers, e-mail marketing and other programs.

The combined company would have about 7,900 employees with operations in nine countries, Valassis and Advo said.