Valassis 3Q Earnings Plummet; Legal Battles with Advo Loom
Valassis reported third quarter net earnings of $6.6 million, plummeting 68.9% from one year ago due largely to charges related to its failed merger agreement with rival direct mailer Advo and fierce price competition.
Revenue for the quarter was $248.9 million, down 6.5%.
The company has refocused it efforts in four key areas: growing and diversifying its revenue base; restoring and enhancing profit margins; leveraging data, technology and analytics to enhance its competitive advantage and enriching and evolving its strong traditions and cultures, President and CEO Alan F. Schultz said in a statement.
“While we have made important progress in some areas of our business, year-to-date, our 2006 performance has fallen short of expectations,” Schultz said.
Valassis’ co-op FSI revenues for the quarter were down 7.1% to $105.9 million due to pricing reductions. Neighborhood targeted product revenues dropped 10% to $79 million and household targeted product revenues were flat at $12.6 million. The quarter ended Sept. 30.
Meanwhile, Advo could face a class-action suit charging that Advo misrepresented its financial health when negotiating its $1.3 billion sale to Valassis.
A Los Angeles law firm filed suit on Sept. 28 on behalf of shareholders who bought Advo stock after its sale to Valassis was announced on July 6, and before Valassis sued Advo on Aug. 30 to rescind the deal (PROMO Xtra, Sept 1, 2006). Advo counter-sued to force the sale, then held a special stockholders meeting on Sept. 13 to approval the deal (PROMO Xtra, Sept 12, 2006).
Advo and Valassis go to trial on those suits on Dec. 11 in Delaware Chancery Court.
Meanwhile, the shareholders’ suit, filed by in U.S. District Court for the District of Connecticut, seeks class-action status for shareholders who bought Advo stock between July 6 and Aug. 30. The law firm is seeking a shareholder to act as lead plaintiff in the case, with a decision expected by mid-November. The suit argues that shareholders bought stock believing the merger would go through, but were allegedly given a false impression of Advo’s financial health. Advo’s stock rose to $36.80 per share after the sale was announced, but fell to $29 a share when Valassis filed suit to block the deal.
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