In July, Valassis, a leading direct marketing services company, agreed to acquire ADVO, “the nation’s leading direct mail media company,” for $37 per share in cash. The numbers: a deal worth about $1.3 billion, combined 7,900 employees in nine countries; 94 of the top 100 advertisers in the US, and penetration of 90% of US homes.

Unfortunately, sometime between the signing of the pre-nups and the wedding ceremony, Valassis got cold feet. ADVO sued – to force the “marriage” and Valassis counter-sued. Here are some selected comments from the companies’ pre-trial briefs, available on their respective websites.

Valassis said:

- Valassis was defrauded in the purchase of ADVO.

- ADVO insisted that prosperity lay ahead.

- Valassis was shocked to learn in late July that the true “actual” third quarter results showed operating income of $12.7 million, $5.3 million (or 30%) below the “on target” forecast that Valassis had been given on the eve of signing.

- ADVO deliberately lied to Valassis to induce it to sign the Merger Agreement.

- As a result of ADVO’s wrongful actions, Valassis is no longer obligated to purchase a company that is earning one-fifth the operating income represented to Valassis when it signed the Merger Agreement.

ADVO said:

- Everything we learned was positively rosy. That’s Valassis’s line today.

- It turned out that some actual results – well, not annual or quarterly results, but some internal, interim, monthly, yet to be vetted and audited results – were wrong. By a couple of million dollars. If we had known that, Valassis claims, we would never have done this $1.3 billion deal.

- They didn’t know? If they didn’t know, they must not have been listening when ADVO told them, as their employee’s own contemporaneous notes reflect, that SDR was a billing “nightmare.” (SDR was a new Oracle-based enterprise-wide order entry and tracking system.)

- Certainly they couldn’t have been paying attention when they read ADVO’s May 2006 10-Q, the one that talked about how “disruption” from “unforeseen difficulties with the transition [to SDR] could adversely affect “results, and could negatively impact” “the Company’s ability to maintain internal controls.”

- The evidence will show that Valassis – and particularly its CEO, Alan Schultz – wanted ADVO, and wanted it very badly.

- Valassis’s shareholders, the undisputed evidence will show, were outraged.

- Valassis now realized it had to find a way out. Which is why we are here today.

- Valassis made a contract, and it is bound to it under Delaware law.