Leading Japanese advertising and marketing services provider Dentsu Inc. has agreed to buy the U.K.'s Aegis Group plc for an enterprise value of about £3.29 billion ($5.1 billion).
Dentsu, of Tokyo, said Thursday, July 12, it would offer 240 pence per Aegis share, 48% more than Wednesday's closing price, and equivalent to £3.16 billion for all Aegis' equity.
It said it already owns or has irrevocable deals to buy shares accounting for 30.5% of Aegis. This includes a near-15% stake it has bought from Vincent Bolloré, a French businessman who controls the Havas SA advertising agency. Bolloré has signed a further deal to sell Dentsu another 5% holding and agreed to eventually sell it his remaining 6.4% stake.
Peel Hunt LLP analyst Malcolm Morgan noted that the enterprise value of the Dentsu deal equates to 11.8 times expected 2012 Ebitda and a price/earnings multiple of 19.2 times.
Given the premium being offered and the fact Dentsu has already secured 30.5% of its target "it would seem a difficult deal to trump," he wrote.
The deal is one of the largest outbound acquisitions by a Japanese company this year after Marubeni Corp. in May won the auction for Omaha agricultural commodities trading company Gavilon Holdings LLC with a $5.6 billion offer, and a Sumitomo Mitsui Financial Group Inc. consortium agreed in January to pay $7.3 billion for RBS Aviation Capital, of Dublin.
All the deals reflect a desire by the Japanese acquirers to diversify beyond their domestic base.
Although Dentsu operates in 29 countries, about 84% of its gross profit last year came from Japan, where it is the leading advertising agency, with a 24.2% market share. It employs 21,000.
In the year ended March, Dentsu had revenue of ¥1.893 trillion ($23.9 billion), gross profit of ¥333 billion and operating profit of ¥52 billion.
Aegis had 2011 revenue of £1.14 billion, about 41% of which came from the Americas and Asia, and underlying operating profit of £200 million. It has over 12,000 employees in 80 countries.
As at Dec. 31, its net debt was £128.4 million.
A year ago Aegis' takeover prospects improved when it sold Synovate, its market research unit, to France's Ipsos SA for £525 million, or about 13 times Synovate's 2010 operating profit. Bolloré had historically been seen as the most likely suitor for Aegis before indications earlier this year he was willing to sell up.
Dentsu President and CEO Tadashi Ishii said the combined entity will be the market leader in Asia Pacific, strong in Europe, and the fastest-growing agency network in the U.S.
"Together, we will be able to deliver fully integrated and best-in-class services to our clients through a new global communication network born in the digital age offering a broadened service portfolio," he said in a statement.
His counterpart at London-based Aegis is Jerry Buhlmann, who said the companies have "complementary geographic fits and aligned visions and strategies."
Dentsu said it will finance the purchase with cash and with loan facilities arranged with Bank of Tokyo-Mitsubishi UFJ. Dentsu will conduct the takeover via a so-called scheme of arrangement, which requires court approvals and clearance from 75% of the Aegis' shareholder base which votes at a meeting.
Aegis shares by late morning in London were up 46% at 236.2 pence.
Dentsu's financial advice comes from Morgan Stanley's Ian Hart, Laurence Hopkins, Hironobu Wakabayashi and Andrew Foster.
Aegis' advisers are Greenhill & Co. LLC's Richard Hoyle, Pieter-Jan Bouten and Hiroto Yamada and J.P. Morgan Cazenove Ltd.'s Tim Wise and David Harvey-Evers.
A Slaughter and May team led by Roland Turnill and including Michael Rowe, Jonathan Fenn and Miranda Leung is providing legal advice to Aegis.
Completion is seen in the fourth quarter.
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