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.â€
- 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.
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