Valassis Communications

(VCI)

agreed to buy rival

Advo

( AD) at a lowered price of $33 a share, ending a legal battle between the direct marketing concerns.

Valassis originally agreed to buy Advo in July for $37 a share, but backed out of that deal nearly two months later, claiming that Advo misrepresented its financial health. Advo sued to keep the buyout intact.

The new agreement announced Tuesday is valued at $1.2 billion, including $125 million Advo debt. As part of the deal, the two companies will drop their litigation against each other. The deal is expected to close during the first quarter of 2007.

"We are pleased to have reached this amended agreement with Advo and put the litigation behind us," said Valassis. "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."

The deal will create the nation's largest direct-mail and newspaper advertising insert company.

Shares of Valassis were trading up $1.33, or 9.3%, to $15.61. Shares of Advo fell 45 cents, or 1.4%, to $32.55.