Aegis CEO Jerry Buhlmann (left) had an interview in the Sunday Times Business News today (there’s no point in providing a link as the Times paywall is a drawbridge) saying, inter alia, that there was no conflct between his giant media buying contract with General Motors and Dentsu’s Toyota, that key shareholder Vincent Bollore was happy with the £3.16bn deal (as he should be with a payment of around £750m) and that, whatever happened to the ever-changing global media market, there was always room for a company (like Aegis) which understood it, could give good advice and could ‘execute.’
Aegis is being bought for a about 11.5 time forecast profits, compared to much larger rival WPP’s 7.5 times rating. So Dentsu’s 240p a share offer, a 50 per cent premium to the Aegis share price on Wednesday last week, looks like a knockout blow. Provided it’s agreed by Dentsu and Aegis shareholders.
Aegis shareholders have nothing to complain about; Bollore gets his three quarters of a billion (although it leaves his other advertising interest, Havas, looking rather beached as it’s now way behind WPP, Omnicom, Publicis Groupe, Interpublic and Dentsu/Aegis) and veteran Aussie media independent Harold Mitchell, of Mitchell Communications, which Aegis bought for about £200m, receives a further windfall of £104m for the part of the deal he took in shares.
Dentsu shareholders might not be so happy as the Aegis deal, in cash, will leave them with about £2bn of debt.
So will anyone else bid?
Not one of the marcoms groups, the shareholders wouldn’t let them. But a private equity bid might emerge if the boys in rhinestones decide that Aegis’s current profits of £160m might rise to £200m or so now that it’s offloaded researcher Synovate to Ipsos for £525m. As the only global media independent Aegis (through its Carat, Vizeum and Isobar networks) has a compelling case to make for global marketers reluctant to place all their business with WPP, Omnicom, Publicis Groupe et al.
If Aegis could make £240m a year, £3.16bn looks decidedly cheap.
As to client conflict, Aegis and Dentsu can probably deal with this. Dentsu is unavoidable in Japan for big Japanese companies because it controls the market. Outside Japan the two do different things, Dentsu becomes a creative agency (chiefly through US acqusition Mcgarrybowen) while Aegis is media-only except for Isobar, which does digital creative work.
The only obvious issue is General Motors. Does GM CMO Joel Ewanick want to work with a Japanese-owned global media buyer with a British base? He might not, but he’s signed a five-year contract (with get-outs). A GM defection wouldn’t unravel the deal.
The only obvious cloud over on any deal like this is the murky issue of ‘sur commissions,’ payments from media owners to media agencies which may, or may not, find their way back in full to the client.
In many cases they don’t. Regulators all over the world have looked at this from time to time and, in general, left the system as it is. The UK’s Ofcom took a keen interest in this recently but, so far, has not chosen to take any further action. Aegis’s Carat network is known to be not backward in coming forward in expecting big discounts from the media owners with whom it places its clients’ business.
Many would argue it has no choice, as dozy clients the world over (via their procurement departments) insist on striking deals that deliver their media agencies no profit at all (on paper), yet still expect a full service including a slap-up dinner at the Column D’Or when they attend a conference in the South of France.
So transparent the media business is not.
Buhlmann made another interesting point in his Sunday Times interview; noting that the media business was dividing into in-home and out of home. The latter used to be the preserve of specialist poster buying agencies – Aegis owns one of the two biggest, Posterscope, while WPP owns the other, Kinetic.
But out of home now means much more than posters: it means events, ‘experiential’ marketing of all sorts, including the huge trade promotions market, and much of what we used to call sponsorship. These are largely unregulated.
All of which might, and at the moment it’s just a ‘might,’ make Aegis attractive to a bidder outside the marcoms universe.