Aug. 31 (Bloomberg) -- Shares of Advo Inc., a direct-mail company that agreed to be bought for $1.3 billion, plunged the most in 10 years after the buyer asked a court to kill the deal, saying it was duped by ``fraudulent'' data.

Valassis Communications Inc., the largest provider of newspaper inserts, said it filed a sealed complaint in Chancery Court yesterday in Wilmington, Delaware, accusing Advo of misrepresenting its finances health and breaching the contract.

Advo engaged in ``fraudulent inducement'' by withholding information or providing some that was ``materially false,'' Livonia, Michigan-based Valassis said in a statement yesterday.

``Advo left us with no choice,'' Valassis Chairman and Chief Executive Officer Alan F. Schultz said in the statement. He said the information ``was erroneous, projections were grossly inaccurate and we believe we were victims of fraud.''

The stock fell $8.21, or 22 percent, to $28.59 at 4:05 p.m. in New York Stock Exchange composite trading. It was the biggest percentage drop since March 1996. Valassis shares fell $1.29 to $19.72.

On July 6, Valassis, with $1.13 billion in sales last year, agreed to buy Advo for $37 a share in cash to counter a slump in print advertising. Advo shares surged 46 percent after the purchase was announced.

Valassis shares dropped 16 percent that day, a sign that its shareholders weren't in favor of the purchase, and the stock had dropped 9.5 percent through yesterday since the deal was announced.

`Saddled With Company'

``If VCI is unable to get out of the deal, it will be saddled with a company it does not want,'' Merrill Lynch & Co. analyst Lauren Rich Fine wrote in a note to clients late yesterday. She rates the shares ``neutral,'' according to the report.

According to a Valassis filing with the U.S. Securities and Exchange Commission yesterday, Advo executives ``knew of, but did not disclose, significant internal control deficiencies associated with Advo's enterprisewide order-to-cash system.''

Valassis spokesman Andy Hopson today declined to comment beyond yesterday's statement.

Advo officials said in a statement after the suit was filed that the complaint is ``baseless and without merit.''

``Advo can only surmise that Valassis' action is merely a smokescreen to hide the fact that Valassis is suffering from an extreme case of buyer's remorse,'' Advo executives said in the release.

Advo spokeswoman Pam Kueber didn't return a message today seeking further comment.

The case is Valassis Communications Inc. v. ADVO Inc., CA2383-N, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Phil Milford in Wilmington at pmilford@bloomberg.net.

Last Updated: August 31, 2006 16:15 EDT