November 21, 2017 / 12:00 PM / a year ago

Breakingviews - WPP rebrands its weak Tokyo defence

HONG KONG (Reuters Breakingviews) - WPP has rebranded its Tokyo defence. The advertising conglomerate is selling into a $1.4 billion buyout it argued “significantly undervalues” its Japanese partner ADK. That reveals a weaker-than-billed negotiating position. One consolation could be re-investing in the Bain-led deal.

WPP chief executive Martin Sorrell.

One minute the group led by Martin Sorrell is calling in the lawyers, decrying the offer’s stinginess, and musing about increasing its own stake. Now it is tendering at the original price. That flies in the face of virtually everything marketing communications professionals espouse about the importance of keeping the message consistent.

In reality, the valuation did not look so bad. At 3,660 yen a share, it was far above the target prices of most analysts. Travis Lundy of Smartkarma estimates that, adjusting for the sale of ADK’s stake in WPP and other shareholdings, it equates to nearly 10 times next year’s EBITDA. That is comfortably more than bigger rivals Dentsu and Hakuhodo fetch in the market.

Meanwhile, there were no counter-bidders in sight. Private equity firm Bain would have been understandably reluctant to set a bad precedent by sweetening its offer. And that ADK and Bain pursued this in the first place suggests WPP’s legal case may not have been that strong either.

WPP’s acquiescence also makes Bain’s life easier. Perhaps Bain could have hit the 50.1 percent threshold without the owner of JWT and Ogilvy & Mather, but given other shareholder opposition it would have struggled to reach the two-thirds level needed for a full takeover. Prising ADK shares out of WPP’s hands, as part of the divorce, could have taken months or years. 

Bain has thrown WPP a bone. A potential minority stake in the buyout vehicle would effectively allow WPP to stay invested in ADK and Japan. This is currently touted with the flimsy promise of “good faith” talks, but could nevertheless come good.

That means Bain gets its buyout done without paying more, yet WPP may get a chance to keep hold of ADK. For a deal involving professional promoters, it’s no wonder there’s something for both sides to spin.


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