* Shares up 46 percent
* Analysts say deal makes strategic sense
* A counter bid seen unlikely
By Kate Holton and Paul Sandle
LONDON, July 12 Japanese ad giant Dentsu
is buying marketing group Aegis for 3.2
billion pounds ($5 billion), the biggest deal in its history as
it seeks to expand outside its home market with the British
firm's European and digital business.
Revealing how badly Dentsu needs growth outside its
shrinking home market, it will pay a 48 percent premium to
secure the takeover after European groups WPP and
Publicis snapped up rival agencies in recent years.
The price represents 20 times full year 2012 expected price
earnings, compared with the 10-11 times at which WPP and
Publicis trade, said analyst Ian Whittaker at Liberum Capital.
The deal means Japan is the second most active overseas
acquirer this year with more than $20 billion worth of deals,
behind the United States but surpassing all major European
nations and China in outbound M&A.
Analysts described the deal as a perfect strategic fit after
Aegis Chief Executive Jerry Buhlmann turned the group around to
grow in Asia Pacific, the U.S., emerging markets and digital
marketing in recent years.
"The quality of the offer, the strong likelihood of deal
certainty, the fact the offer was cash and the fact it was a
meaningful serious approach meant that we entered bilateral
discussions with them," Buhlmann said of Dentsu's approach.
Aegis, which has Coca-Cola, GM and Disney on its client
list, has long been seen as a potential takeover target,
although it had for years been linked to the French group Havas
as French financier Vincent Bollore was the largest
shareholder in both.
Aegis has performed strongly since selling its Synovate
market research unit last year to focus on the faster growth
areas of media buying and selling and digital communications.
In 2011, the group increased the proportion of its revenues
from digital to a sector-leading 35 percent.
Analysts said the deal underlined the value present in
advertising companies despite a tough economic climate and could
lift the whole sector.
"We see the deal as underlining that the advertising sector
still represents significant value," Bernstein analyst Claudio
"The premium paid by Dentsu suggests they are confident of
continuing long term growth for Aegis, despite recent negative
commentary on the outlook for the European ad market."
For Dentsu, the deal enables it to find new growth outside
its home market, which is eroding. Though the company dominates
traditional Japanese print and broadcasting sectors, overall ad
industry revenue fell 2.3 percent to 5.7 trillion yen ($72
billion) in 2011 -- the fourth annual contraction for an
industry that in the past decade has shrunk by almost 6 percent.
"Dentsu and Aegis will be the market leader in the
Asia-Pacific region, enjoying a strong presence across Europe
and the fastest growing agency network in the US," President and
CEO of Dentsu, Tadashi Ishii, said.
"In recent years, under the leadership of Jerry Buhlmann and
his team, Aegis has been recognised as the most successful
independent media and digital communications agency with strong
performance momentum and talented, client-focused employees."
Dentsu said it had already purchased or had irrevocable
undertakings in relation to around 30 percent of Aegis' stock,
including shares from Bollore.
The Bollore group confirmed it had agreed to sell
its 26.4 percent stake to Dentsu for 240 pence a share in a big
payout for the group after it bought into Aegis in 2005.
Bollore will now have more capital to invest elsewhere,
perhaps in his electric car battery project or in
media-to-telecom group Vivendi where he is poised to
take a 5 percent stake.
The deal comes months after Dentsu ended a nine-year
alliance with Aegis' European rival Publicis. The
French company bought back a 9.1 percent stake held by Dentsu in
February, leaving the Japanese group with the firepower to
strike another deal in Europe, analysts said at the time.
"We at Aegis are delighted at the prospect of being able to
play a full part in helping Dentsu create a platform for global
growth and continued digital innovation," Buhlmann said.
"By forming the first communications group with true global
reach, the growth strategies of both businesses will be enhanced
as we provide more scale, geography, capability and investment
to support clients."
Morgan Stanley advised Dentsu on the deal, while Greenhill
and J.P. Morgan Cazenove advised Aegis.