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Valassis to Buy ADVO for $1.2 Billion; Lawsuits Dropped

Valassis Communications said it would buy fellow direct marketer ADVO for $1.2 billion, as the two companies agreed on a lower price for a disputed takeover and dropped lawsuits against one another.

Valassis, a newspaper insert distributor based in Livonia, Michigan, will pay $33 a share in cash for Advo, a discount of about 11% to the $37 a share it agreed to pay when the two companies first struck a deal.

Valassis later sued ADVO to void the original deal, accusing ADVO management of misrepresenting the company's financial health. ADVO, a direct mail advertiser based in Windsor, Connecticut, filed a countersuit, saying Valassis has no right to back out of the agreement.

As part of Tuesday's deal, the companies have agreed to dismiss their litigation in the Court of Chancery for New Castle County, Delaware. Valassis shares rose about 14% in early trade on the New York Stock Exchange.

Valassis said that in preparing for the lawsuit it "determined that the evidence will not support the conclusion that ADVO or any of its directors, officers, agents or representatives engaged in any fraud or other misconduct in connection with the parties' entry into their original merger agreement."

Valassis previously charged that ADVO had provided "materially false financial" data and withheld important information when it knew operating results would fall short of forecasts.

The companies expect to close the deal -- which also includes about $125 million in existing ADVO debt -- during the first quarter of 2007.

"We are pleased to have reached this amended agreement with ADVO and put the litigation behind us," Valassis Chief Executive Alan Schultz said in a statement. "As we have maintained since the execution of the original agreement, we believe in the strategic value of an ADVO and Valassis combination and look forward to becoming a more diversified company with the benefits it will bring."

Valassis initially pursued ADVO in hopes a deal would curb its reliance on newspaper inserts and let it take advantage of growing demand for targeted advertising.

ADVO's shared mail distribution business penetrates up to 114 million households, or 90% of U.S. homes, while Valassis' weekly newspaper distribution reaches over 60 million households. The combined company will have 7,900 employees with operations in nine countries.