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ADVO Launches Counter-Suit

October 2006
WINDSOR, CT—Perhaps Harris DeWese, investment banker and M&A advisor to the printing industry, should teach a class on transactional etiquette. Two prime candidates for such a seminar—once poised to cap a monster, 10-figure deal—are slugging it out in public with the decorum of a high school romance gone sour.

Despite the announcement that Valassis Communications was suing ADVO Inc. to rescind its $1.3 billion merger agreement, ADVO shareholders voted in favor on September 13 to adopt the merger agreement.

ADVO also leveled a counter-suit against its would-be future partner. The suit asks the court to make Valassis stick to the July 5 merger agreement, seeks a decree of specific performance requiring Valassis to consummate the deal at $37 per share, and seeks interest from September 15 on the $37 per share merger consideration for ADVO shareholders. Valassis, in turn, said that the counter-suit was expected.

The firms have engaged in battling press releases, especially Valassis, in the weeks since the August 30 filing by Valassis to rescind the deal. Valassis alleges ADVO intentionally provided false information and “withheld material information” regarding operating income. The suit also alleges ADVO executives knew of, but did not disclose, significant internal control deficiencies associated with ADVO’s order-to-cash system.

ADVO called Valassis’ reaction an extreme case of buyer’s remorse, which Valassis countered was “patently untrue.” ADVO also said the company had not consented to the unsealing of Valassis’ complaint because it contains non-public information about ADVO that Valassis agreed to keep confidential.

In a statement, ADVO noted that Valassis actually filed the complaint under seal because it understood that the parties’ confidentiality agreement required it to do so.

“ADVO rejects Valassis’ invitation to litigate this case by press release. ADVO will instead litigate its case with evidence and briefs to the Delaware Chancery Court,” the statement concluded.

Valassis believes ADVO’s opting to not unseal the complaint carries ulterior motives.

“Even now, ADVO is blocking access to information in an attempt to hide the truth,” Valassis said in a release. “Valassis requested that ADVO agree to waive the terms of the confidentiality agreement related to the merger, thus allowing shareholders and the public to review all of the grounds for the lawsuit. ADVO turned down this request, forcing us to redact key facts from the public version of the suit—information that is necessary for investors to properly evaluate both sides of this case.

“If ADVO management has nothing to hide, why would they refuse to provide Valassis and (accountants) KPMG access to information to which Valassis is legally entitled under the merger agreement? We challenge ADVO to waive the confidentiality agreement and release the complete version of the suit. Let shareholders and the public assess the facts themselves.”

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