Aegis Group’s bullish chief executive, Jerry Buhlmann, has been as good as his word. Back in March, on the coat-tails of some rather disappointing annual results, Aegis announced it was raising £175m through a convertible bond issue to “…bolt on acquisition capability.”
Now we know what he has bolted on: Mitchell Communications, Australia’s largest independent media-buying group. Actually it’s a bit more than that. Harold Mitchell, who set up the company in 1976 and still owns 30% of it, has been careful to diversify into other marketing services areas –public relations, branded entertainment, sponsorship and digital marketing among them.
There seems no reason to doubt Aegis’ boast that the acquisition is a good cultural and geographical fit, which will immensely leverage its position in Australasia. Whether the £208m deal, 60:40 in cash and shares, is as “earnings accretive” as the company makes out is another matter. At 18x earnings, it looks a wee bit pricey.
Then again, quality costs. And there may be hidden strategic wisdom in this apparent money madness. The deal will, in the short term, make it even more difficult for 29.9% shareholder Vincent Bolloré to bring to fruition what must by now be the longest-running takeover bid in corporate history. Despite Aegis’ historically low share price in recent times, Bolloré has not had the wherewithal for a coup de grace. Indeed, he seems to have been casting about for allies to help him in a break-up bid. If so, the revving tank engines will now be switched off while he considers his next move.
One important insight here is Harold Mitchell’s decision to take up all his rights in shares not plump for the cash – which has the effect of making him a 4% holder of Aegis stock. You might argue that he had little choice if he were not to appear disloyal to his new owner. Even so, a smaller amount taken out in cash would not have been unreasonable. So why has he done it? One possibility is that the wily old bird scents the inevitability of takeover. Not now, perhaps, but in the medium term. A bid premium would have to be at least 30% above the recently traded share price: better than any return made on cash taken out. He’s shrewdly hedging his bets.