Inevitable Disruptions

By Baselinemag  |  Posted 2006-11-21 Print this article Print

Marketing services firm Valassis wants to drop its plan to buy rival ADVO, citing deficiencies with ADVO's enterprise resource planning system. ADVO disagrees.

Inevitable Disruptions'">

'Inevitable Disruptions'

ADVO, in its response, said it outlined problems with SDR for Valassis' management in February. ADVO's management "made clear that the inevitable disruptions caused by such an undertaking presented short-term risks for ADVO's financial performance and ADVO's ability to monitor that performance," the company said in its court filing.

After SDR launched in April, according to ADVO's response, "there were adjustments to be made and bugs to be ironed out." (ADVO did not detail the nature of the "bugs" in its court filing.) Because employees were still learning how to use the software, ADVO said, numerous entries were incorrectly entered into SDR in April and May. As a result, the company, which ordinarily closes its books on a monthly basis, couldn't close out April and May until the end of May.

In its response, ADVO said it flagged SDR issues "yet again" for Valassis on May 18 during a pre-merger due-diligence meeting.

According to the filing, Schultz, Valassis' CEO, asked whether ADVO had encountered any issues with SDR. Again, according to the response, Marie Gant, ADVO's chief information officer, responded that "many in the organization had 'expressed pain' over its adoption."

ADVO claims it informed Valassis about specific problems with SDR. These include: Time to process orders had increased; orders were getting "stuck" in the system; and customer service and sales personnel experienced "some high levels of anxiety" during the first several weeks of going live on the Oracle system.

But Valassis, in its lawsuit, claimed that Gant actually portrayed SDR as "a great success" at the May 18 meeting. It wasn't until Aug. 7, according to Valassis, that ADVO provided a report detailing the "numerous and significant technical issues" with SDR, including lengthy billing delays and an inability to generate accurate forecasts (which were problems, according to ADVO's countersuit response, that ADVO says it had previously disclosed).

Both companies agree that in May, ADVO told Valassis that SDR was expected to increase revenue by $9 million and that spending on the system would be cut by $3 million per quarter as the system became fully deployed and stable. However, according to the Valassis suit, ADVO's August report indicated that SDR will reduce revenue by $4 million and increase costs by an additional $6.8 million, Valassis says. (In its response, ADVO denied this last claim.)

Valassis' executives believed that they were deceived, as the company summed up in its lawsuit: "ADVO hid a host of material problems from Valassis, including the fact that the SDR system was replete with technical problems that made it impossible for ADVO to ascertain any current financial information."

But ADVO, in its response, maintained that it's the wronged party. "[T]here is no legal basis whatsoever," it said, "for Valassis not to move forward with the definitive merger agreement." In other words: See you in court.


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