Bain/ADK/WPP: sayonara Sorrell
Little to be gained by blocking a deal that promises change for the better
Bain Capital really wants this deal. The American private equity investor has launcheda $1.3bn tender offer for Asatsu-DK, the third-largest advertising agency in Japan, which is partly owned by WPP. The offer represents a vote of confidence in the growth prospects of Japan, even if the 15.4 per cent premium is modest. If the transaction proceeds, it would be a further milestone for private equity investors, whose long-running attempts to woo Japanese business have often been cold-shouldered.
Asatsu really wants this deal, too. The board has advised shareholders to accept the offer, event though long-term stakeholder WPP opposes it. The Japanese group has belittled its relationship with the UK-listed ad giant, saying that it has “not materially contributed to profits”.
Revenues at ADK have shrunk an average of 0.6 per cent annually in the past five years. Sales at competitor Hakuhodo grew 4.5 per cent a year in the same period. Asatsu wants to emphasise digital sales, which, in a year-on-year comparison, grew a quarter to 8 per cent of its ¥155bn ($1.4bn) revenues in the recent half year.
For years, foreign private equity groups have been trying to make Japan Inc sweat balance sheets harder. Securities and land make up 28 per cent of assets of all Japanese companies, according to research by broker CLSA. Bain’s coup in leading the consortium that is buying Toshiba’s memory division shows tough foreign dealmakers are becoming more welcome.
But WPP controls 41.3 per cent of ADK shares with British value investors Silchester. That allows Sir Martin Sorrell, WPP’s ebullient boss, to impede the deal. Fair enough if he is seeking a bump to the offer price. But he should not try to block a deal with potential to create value simply to preserve the unsatisfactory status quo. WPP has had its chance to push for reform at ADK. Time for someone else to take a turn