HARTFORD, Conn. (AFX) - Advo Inc. on Friday accused marketing company Valassis Communications Inc. of trying to force a lower sale price by suing to terminate their merger agreement.
Shares of Advo, the nation's largest direct-mail marketer, on Friday regained some of the ground they lost Thursday after Valassis sued to block the $1.3 billion acquisition deal that the companies announced in July.
Valassis, which planned to pay $37 per share for Advo, accuses Advo of withholding and fabricating information about its finances and other factors that affect the long-term value of the Windsor, Conn.-based company.
Advo countered Friday that Valassis' claims are 'nothing more than a case of buyer's remorse' and that Valassis appears to be trying to drive down the purchase price in violation of the merger deal.
Investors and analysts reacted quickly to the feud.
Advo shares fell $8.21 on Thursday but gained $2.40, or 8 percent, to close at $30.99 Friday on the New York Stock Exchange.
Valassis shares ended the day down $1.23, or 6 percent, at $18.49 Friday on the NYSE after briefly hitting a 52-week low of $18.03. Valassis shares have been weak since the merger was announced.
Valassis, based in the Detroit suburb of Livonia, filed its lawsuit Wednesday in Delaware Chancery Court. In addition to seeking to terminate the deal, Valassis wants an undisclosed amount of damages from Advo.
In its statement Friday, Advo said Valassis officials called Advo on Wednesday and threatened to file suit in one hour unless Advo reopened negotiations on the purchase price. Valassis also wants unfettered access to all financial and personnel records.
'The lawsuit appears to be a tactic designed to pressure Advo to agree to a price lower than the parties' binding agreement requires,' Advo said in its statement.
In its lawsuit, Valassis accuses Advo of falsehoods 'intentionally made to induce Valassis to enter into an agreement to purchase Advo at a greatly inflated price.'
Valassis also has hired a forensic accounting firm to review Advo's recent and projected financial data, which it believes 'were unachievable and which falsely portrayed Advo as a robust organization capable of supporting a valuation of $37 per share.'
Linda Varoli, vice president of research at Wall Street Access, an institutional brokerage firm, said Friday that it is difficult to imagine how they will work together if the merger is enforced, given the vehement public accusations against each other.
'It seems like they're playing a game of chicken at this point and neither of them is swerving, neither of them is hitting the brakes,' she said.
The combined company was expected to serve about 20,000 advertisers, including 94 of the top 100 in the U.S., with direct mail, newspaper inserts, coupon fliers, e-mail marketing and other programs.
It would have about 7,900 employees with operations in nine countries, Valassis and Advo said.
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