FSI giant Valassis Communications has filed a lawsuit in an effort to rescind its $1.3 billion purchase of direct-mail firm Advo.
Valassis sued Advo on Aug. 30, charging Advo with lying about its financial status and about management problems.
Valassis accuses Advo of presenting false information and withholding information during acquisition negotiations. Livonia, MI-based Valassis announced its plans to buy Windsor, CT-based Advo on July 6; the Federal Trade Commission approved the deal on Aug. 16 (PROMO Xtra, July 7, 2006). The deal was expected to close in September or October, pending shareholders’ approval.
Valassis’ suit, filed in Delaware Chancery Court, claims that Advo executives knew, but did not tell Valassis, about “significant internal control deficiencies,” per Valassis, in the system-wide order-to-cash system that Advo adopted this summer after four years of planning.
“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,” said Valassis President-CEO Alan Schultz in a statement.
Advo will defend the suit “vigorously” in order to enforce the merger agreement. Advo said the suit demonstrates “an extreme case of buyer’s remorse.”
Valassis planned to assume $125 million in Advo debt and refinance it after the merger. On Aug. 9, Valassis acknowleged in SEC documents that the purchase of Advo—especially the planned $1.2 billion cash payout to Advo shareholders—could overextend Valassis’s financing and scotch the deal. And if Valassis did raise enough private and public funding to complete the acquisition, the resulting debt could make Valassis vulnerable to an economic downturn, limit its flexibility to manage changes in the industry, and cap its ability to borrow in the future.
Valassis’ sales fell 5.7% to $260.6 million for the quarter ended June 30. Advo’s sales, meanwhile, were up 9.4% to $386.8 million for the quarter ended July 1.
Meanwhile, Valassis’ separate lawsuit against rival News America Corp. continues. Valassis filed that suit in January, alleging that News America used anti-competitive pricing schemes to gain a monopoly in FSI production and distribution. Valassis seeks $1.5 billion in damages.
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