Updated from 5:26 p.m. EDT



sued to break its merger with


( AD), claiming Advo misrepresented its financial health.

Livonia, Mich.-based Valassis said it filed the suit in Delaware Chancery Court. The suit claims Advo "intentionally provided Valassis with materially false financial information and withheld material information" when its operating income "was materially off forecast."

The companies agreed in July to a $1.2 billion direct-mail and newspaper advertising insert merger.

"We believe that taking this action is in the best interest of our shareholders," said Valassis chief Alan F. Schultz. "Advo left us with no choice. The pertinent information we received was erroneous, projections were grossly inaccurate and we believe we were the victims of fraud."

Advo said in a statement that Valassis' claims are baseless and it remains committed to the deal.

"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," the company said.

Advo said it may take action to enforce the agreement.

Shares of Advo plummeted 39% in after-hours trading, falling $14.29 to $22.51. The Valassis deal called for a purchase price of $37 a share.