London/Tokyo: Dentsu Inc., the 111-year-old Japanese advertising company, agreed to buy Britain’s Aegis Group Plc in a £3.16 billion (Rs 27,270 crore) deal to create a global media and marketing network to challenge WPP Plc.
Aegis shareholders will get 240 pence in cash, or 48% more than the stock’s close in London on Wednesday, in an offer recommended by directors, the companies said on Thursday.
Tokyo-based Dentsu has bought a 15% stake and will acquire a further 5% from companies controlled by Vincent Bollore, Aegis’s largest shareholder. Aegis jumped 46% to 236.1 pence at 10:48 am in the UK capital.
The transaction, the biggest in Dentsu’s history, would create one of the largest ad firms to compete with the likes of WPP and Omnicom Group Inc.
London-based Aegis is the biggest independent buyer of advertising space and this year won a contract to manage $3 billion annual ad budget for General Motors Co.
“This clearly takes Dentsu to a new level and puts them up there with the big guys,” said Alex DeGroote, an analyst at Panmure Gordon and Co. in London.
At face value this is strategically a good deal for both Dentsu and Aegis and unequivacably make sense.
Aegis shares jumped 12% this year through Wednesday, compared with a 4.6% increase by the FTSE All-Share Media Index. Dentsu fell 1% to 2,306 yen at the close of trading in Tokyo.
The price Dentsu pays values Aegis at about 12 times the company’s earnings before interest, taxes, depreciation and amortization.
Global advertising deals in the past three years fetched a median multiple of 8.7 times earnings, according to Bloomberg data.
The purchase is the second-biggest overseas takeover by a Japanese company this year, Bloomberg data show. Overseas acquisitions jumped to a record $86.5 billion last year. So far in 2012, Japanese companies have made $37 billion of cross-border deals.
While Europe’s slowdown has led ad agencies to expand into faster-growing markets and fuelled acquisitions in Brazil, Russia, India and China, the takeover of Aegis will help Dentsu reduce its reliance on Japan, where the company generated 84% of its sales in the last fiscal year.
Olympics and elections
Publicis Groupe SA, the third-largest advertising company, ended a strategic alliance with Dentsu this year when it bought back its shares held by the Japanese company. Dentsu still holds a 2.1% stake in Paris-based Publicis.
Advertising researcher MagnaGlobal reduced its global ad spending forecast for 2012 to 4.8% from 5% last month. Worldwide ad spending is projected at $480 billion this year and the company said ad markets should benefit from expansion in emerging markets as well as the Olympics and US elections.
“Dentsu will consider consolidating Aegis from next fiscal year if it closes the acquisition by the end of December,” executive vice-president Shoichi Nakamoto said at a press conference in Tokyo. Dentsu plans to keep current Aegis managers.
“Analysts have speculated for years that Bollore, who is also the majority shareholder in Havas SA, would eventually combine the French advertising company with Aegis. Bollore will now retain a 6% stake in Aegis, though Dentsu has an irrevocable commitment’ to acquire those shares in the future,” Tim Andree, senior vice-president of Dentsu, said on a conference call on Thursday.
The French businessman last year agreed to sell 60% of Bollore Group’s television assets to Vivendi SA’s pay-television unit Canal Plus in exchange for shares. Bollore owns about 1% of Vivendi and he saidhad in June, during Bollore Group’s shareholder meeting, that he would like to increase his stake to as much as 5%.
About 80% of Aegis’s 2011 revenue of £1.14 billion came from outside the Asia-Pacific region, according to Bloomberg data. Revenue may climb 15% to £1.3 billion this year, the average of 22 analyst estimates compiled by Bloomberg show.
Dentsu has a target to boost its operating profit to ¥70 billion for the year ending March 2014 with measures including acquisitions and winning new clients. It had an operating profit of ¥52 billion last fiscal year.
Aegis would be Dentsu’s fourth acquisition this year, according to data compiled by Bloomberg.
The purchases include ML Rogers Llc and Bos, both advertising agencies in North America.
Harold Mitchell, who is executive chairman of Aegis Media Australia, will retain his seat on the UK company’s board, Aegis chief executive officer Jerry Buhlmann said.
Buhlmann doesn’t expect cost cuts following the combination, he said in an interview with Bloomberg Television. No offices will be closed and Aegis will keep its headquarters in London, he said.
The real benefits are revenue synergies, Buhlmann said. “This is a very good price for our shareholders.”
The India chiefs of Denstu and Aegis declined to give details about the implications of the acquisition for operations in this country.
“We are still in the process of completing the deal. It’s a 100% buyout which will be complete by the end of this year,” said Rohit Ohri, executive chairman, Dentsu India Pvt. Ltd. “We still have to discuss the implications of this deal for various markets across the globe.”
Ashish Bhasin, chairman (India) and chief executive (Southeast Asia), Aegis Group Plc, did not comment on the deal.
Prasoon Joshi, executive chairman of McCann Worldgroup, said, “The Indian advertising scenario is still driven largely by traditional advertising mediums because of the complex consumer patterns in our country. Having said that, every advertising agency is looking at either organically extending its business to encompass digital advertising or are considering acquisitions. It is a natural extension.”
Satbir Singh, managing partner and chief creative officer, Euro RSCG India, said the Dentsu takeover of Aegis came as a surprise.
“It will now make Dentsu the biggest marketing network in Asia. The day to day functioning isn’t impacted much when holding companies pick up agencies. In this case, Dentsu is and has been regarded as a Japanese company in India. Most of its clients are Japanese. With Aegis being an European company, some European clients will be interested in it in the time to come,” he said.
In India, the Japanese company’s units include Dentsu Communications Pvt Ltd, Dentsu Marcom Pvt. Ltd, Dentsu Mediatech Pvt. Ltd. and Dentsu Creative Impact Pvt.
Aegis Media, which handles accounts for brands such as Philips, Adidas and Reebok, entered India in June 2008. Its India units include Carat, Vizeum (both media buying and planning agencies), Poster Scope (out of home media), Isobar (digital), iProspect (search), Carat Fresh Integrated (rural activation), Doosra (creative) and PSI (airport retail advertising). Carat came to India in 2000.
Bloomberg reporters Robert Fenner in Melbourne, Matthew Campbell in London, Philip Lagerkranser in Hong Kong, Marie Mawad in Paris and Takashi Amano in Tokyo contributed to this story. Vidhi Choudhary and Aminah Shaikh of Mint also contributed.