Why FTC Should Examine Valassis and News America's $500M Settlement

Last Updated Jan 31, 2010 3:08 PM EST

The $500 million settlement between News America Marketing Group and Valassis, which wraps up all three cases in which NAM was accused of maintaining a predatory monopoly on supermarket ads and coupons, is a significant victory for NAM even though the News Corp. (NWS)-owned agency is the one writing the check.

Why? Because $500 million is much less than NAM stood to lose in the litigation. Having already lost a $300 million verdict in state court, NAM faced similar potential damages in federal court, except there damages are tripled. Knowing that the evidence had already persuaded one jury in Valassis' favor, NAM stood to lose another $900 million. Valassis may have let NAM off the hook cheap.

As the settlement limits NAM's further cash damages to just $200 million, one assumes that the real meat of the deal is contained in this sentence from Valassis:
NAM will pay Valassis $500 million and will also enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits.
We don't yet know what that deal looks like or what practices will now be banned. But it instantly raises a question that the FTC ought to examine closely: If the court signs off on the pact it leaves just two companies in an agreement to control more than 90 percent of supermarket advertising. How can this cartel possibly be good for clients? (Bear in mind that one client exec at Sara Lee said it "feels like they are raping us and they enjoy it" under the old system when the two firms competed.)

I guess we'll find out over the next 10 years.

After the jump: Statements from both companies. NAM: News Corporation Settles With Valassis Communications for $500 Million Settlement covers federal case scheduled for trial in Michigan on February 2, 2010 and two other pending cases

New York, NY, January 30, 2010 â€" News Corporation today announced it has settled with Valassis Communications Inc. for $500 million in a lawsuit filed against the Company's News America Marketing unit that was scheduled to go to trial in a Michigan federal court on February 2, 2010. The settlement also covers the $300 million Valassis was awarded in July in a Michigan circuit court that is currently on appeal and a pending state court case in California.

"It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury," said News Corporation Deputy Chairman, President and Chief Operating Officer, Chase Carey. "That, coupled with concerns over the venue, led us to believe it was in the best interests of the Company and its stockholders to agree to a settlement."

Valassis: Valassis and News America Agree to Settle All Outstanding Lawsuits News America Agrees to Pay $500 Million; Signs 10-Year Shared Mail Distribution Agreement with Valassis Direct Mail

LIVONIA, Mich., Jan 30, 2010 /PRNewswire via COMTEX/ -- Valassis (NYSE: VCI), one of the nation's leading media and marketing services companies, announced today that it has reached an agreement to settle its outstanding lawsuits against News America Marketing (NAM), a division of News Corporation. The settlement discussions were overseen by the Honorable Judge Arthur Tarnow of the United States District Court, Eastern District of Michigan. Under the terms of the settlement, NAM will pay Valassis $500 million and will also enter into a 10-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. In addition, the judge will issue a permanent injunction related to certain business practices at issue in the lawsuits.

"I am pleased that we were able to reach a mutually agreeable settlement and avoid protracted future litigation," said Alan F. Schultz, Valassis Chairman, President and Chief Executive Officer.

The settlement includes the dismissal with prejudice of Valassis' lawsuits pending against NAM in the United States District Court, Eastern District of Michigan, and the Supreme Court of the State of California for the County of Los Angeles. The settlement agreement also provides that the judgment in the Wayne County Circuit Court case from July 2009 will be satisfied and all related appeals will be dismissed. For more information regarding these lawsuits, see Valassis' most recently filed Form 10-Q. Finally, the settlement dismisses with prejudice NAM's defamation suit against Valassis in The Supreme Court of the State of New York.

The trial team was led by Greg Curtner of Miller, Canfield, Paddock and Stone, PLC and David Mendelson of the Law Offices of David Mendelson and included Michael Palizzi, Kimberly Scott and Robert Wierenga, also of Miller Canfield, Anthony Rusciano of Plunkett Cooney PC, and Henry Baskin of The Baskin Law Firm.

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