Valassis to buy Advo for $1 billion in settlement

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Valassis Communications Inc. said on Dec. 19 it would buy fellow direct marketer Advo Inc. 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, MI, will pay $33 a share in cash for Windsor, CT-based 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.
"All things considered, we view this as a decent outcome," Merrill Lynch analyst Lauren Rich Fine said in a research note published Dec. 19. "We think VCI can possibly get by without issuing any equity."
Valassis' obligations under the amended merger agreement are not conditioned upon obtaining financing, and there are no conditions to close other than the approval of Advo stockholders at a special shareholders meeting.
The parties expect to close the transaction during the first quarter of 2007.
Valassis sued Advo to void the original deal in late August, accusing Advo management of misrepresenting the company's financial health.
Advo then filed a countersuit, saying Valassis had no right to back out of the agreement.
As part of the deal, the companies have agreed to dismiss their litigation in the Court of Chancery for New Castle County, DE.
Extensive discovery proceedings in the litigation included the continued review of over 1 million documents produced by Advo and the depositions of more than 30 Advo witnesses.
Based on this, Valassis 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.
Andy Hopson, of public relations firm RuderFinn and a Valassis spokesman, could not comment on how the two companies suddenly came to reach a settlement. But he said that the company "is very pleased to have reached this amended agreement with Advo and put the litigation behind us, and we look forward to becoming a more diversified company."
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.
The transaction will create the nation's largest integrated media services provider, featuring comprehensive product and customer offerings in the industry serving 20,000 advertisers worldwide, including 94 of the top 100 advertisers in the United States.
The combined company will be positioned to capture growth across the expanded product and service portfolio, delivering customized, targeted solutions on a national, regional, ZIP code, sub-ZIP code and household basis.
Advo's shared mail distribution business penetrates up to 114 million households, or 90 percent of U.S. homes, adding substantially to Valassis' weekly newspaper distribution of over 60 million households.
The combined company will have 7,900 employees with operations in nine countries.
However, Ms. Fine said in her report that Merill Lynch "didn't and still do not believe there will be a dramatic revenue boost due to the business combination.
"We worry about poor morale and relations between the two entities as the battle has been particularly nasty and public," Ms. Fine said. "We also have to assume there could eventually be some management changes, but are hopeful it isn't anytime soon."

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