By Quentin Webb
HONG KONG (Reuters Breakingviews) - In a Japanese ad-land spat, Bain Capital has the advantage. On Monday, the U.S. buyout firm unveiled a 152 billion yen ($1.3 billion) deal to privatise Asatsu-DK, Japan’s third-largest advertising agency. This gives ADK’s bosses a way to escape a disappointing 1998 tie-up with Britain’s WPP.
The situation is unusual, and not just because ADK has an odd sideline in anime production, including Doraemon, a time-travelling robot cat revered by Asian children. Japanese corporations are fond of alliances, frequently sealed with hefty cross-shareholdings. But it is rarer to see these abandoned, even if they consistently under-deliver, as this one has.
ADK owns WPP stock worth some 65 billion yen, a big chunk of its own overall value. But the two firms have failed to agree on how to tackle rapid industry change, and ADK wants the freedom to work with a wider range of partners.
At 3,660 yen a share, the tender offer represents a premium of about 15 percent to ADK’s share price before the news started to leak. That is a fairly slim mark-up, and a source close to WPP told Reuters that Bain’s offer significantly undervalues ADK. On Tuesday, ADK shares duly leapt above the tender price, indicating hopes for a sweeter offer or a counterbid.
That may be optimistic. To be sure, WPP owns nearly 25 percent of ADK. If it refused to tender, and another 8 percent or so of shareholders also held out, Bain would fall short of the two-thirds needed for a full takeover.
But the original tie-up contract precludes WPP from making its own bid. Meanwhile, Bain’s tender is only conditional on securing 50.1 percent, so it could theoretically obtain control and still leave ADK listed. Time is on Bain’s side. By dissolving the duo’s pact, as ADK says it has the right to do now, it can force WPP to sell its stake, either through a buyback or later via an open-market sale.
As for valuation, Bain’s offer touts an eye-popping multiple of nearly 19 times last year’s EBITDA. That ignores the value of ADK’s WPP shares, but the offer price still looks pretty full, given analysts’ targets average 2,738 yen per share, according to Eikon. So outside shareholders may well be happy to sell now.
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