Valassis Communications Inc.: Billion-Dollar Acquisition Aims To Boost Revenue, Diversify

Aug. 2, 2006
Valassis Communications' acquisition of ADVO will extend its reach to 90% of its domestic market.

In an effort to broaden its reach and diversify its client base, Valassis Communications Inc. has entered into a merger agreement with ADVO Inc., a direct-mail media company.

According to Livonia, Mich.-based Valassis -- one of IndustryWeek's IW 50 Best Manufacturers for 2006 -- the $1.3 billion deal means it is now the nation's largest integrated media services provider with 20,000 advertisers worldwide, including 94 of the top 100 advertisers in the United States.

Valassis produces and distributes newspaper-delivered promotions and advertisements such as inserts, sampling and poly-bags. Currently Valassis' newspaper distribution reaches over 60 million households. With the addition of ADVO, which reaches up to 114 million households, or 90% of U.S. homes, Valassis has put itself in the catbird seat in terms of consumer penetration.

"We will have an unsurpassed ability to deliver value and savings to consumers where, when and how they want -- and to do so with advanced analytics and targeting capabilities that maximize advertisers' return on investment," said Alan F. Schultz, Valassis chairman, president and CEO in a July 6 statement. "This combination is a first in the media services industry and uniquely positions us to capture growth by anticipating the needs of the marketplace and evolving to meet them."

The deal, which is scheduled to close in late October, will create a 7,900-strong workforce with operations in nine countries. How the deal will fare for current Valassis customers has yet to be seen.

Valassis Communications Inc.
At A Glance
Valassis Communications Inc.Livonia, Mich.Primary Industry: Publishing & PrintingNumber of employees: 3,6002005 In ReviewRevenue: $1.1 billionProfit Margin: 8.43%Sales Turnover: 1.62Inventory Turnover: 31.65Revenue Growth: 8.33%Return On Assets: 12.93%Return On Equity: 67.89%

According to an article in Editor & Publisher's August 2006 edition, "The fear is that Valassis will start steering its clients to use direct mail rather than to newspapers."

The article, which notes that Valassis works with 13,000 newspapers, adds, "There may be some perception that we are going to abandon the newspapers," said Bill Blackmer, vice president of strategic sourcing at Valassis. "This is nothing further from the truth. Let's remember, 80% of [our] revenue is derived from newspapers. We are just not going to throw that away."

In terms of revenues, the company recently released its second-quarter results, which ended June 30, 2006. Quarterly revenue was $260.6 million -- down 5.7% from year-ago results.

"The first half of 2006 has been disappointing for our business and the industry in general," said Shultz. "We are working toward improved revenue results and cost control for the back half of 2006. We are excited about the prospects of our pending acquisition of ADVO and the positive impact we believe the combination will have in creating value for both customers and shareholders."

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