Coupons giant Valassis Communications Inc. Aug. 30 sued Advo Inc. in the Delaware Chancery Court to rescind its merger agreement with Advo based on allegations of fraud and material adverse changes.
Valassis alleges that Advo management materially misrepresented the financial health of the company and failed to reveal internal control deficiencies.
In July, Livonia, MI-based Valassis said it would buy all outstanding shares of Advo a deal valued at about $1.3 billion, including about $125 million in Advo debt that Valassis plans to refinance.
According to the complaint, Advo intentionally provided Valassis with “materially false financial information” and “withheld material information” at a time when the operating income was materially off forecast.
The complaint also alleges that Advo executives knew of, but did not disclose, significant internal control deficiencies associated with Advo’s enterprise- wide order-to-cash system.
In a statement, Advo, Windsor, CT, said it learned Aug. 30 that Valassis filed the lawsuit, and rejected its claim that it has any basis to back out of the deal.
While Advo said it has not yet had time to fully review the lawsuit, it said it believes it is baseless and without merit.
“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,” the statement said.
Advo said it remains committed to the transactions contemplated by the binding merger agreement, and will take action to enforce that agreement and vigorously defend itself against Valassis’ claims.
Earlier this month, the Federal Trade Commission granted early termination to Valassis of the waiting period required for the company to acquire Advo.