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Another scandal at Aegis leaves Jerry Buhlmann looking like Mole Whacker

November 4, 2011

It’s lucky for Aegis Group – as my old chum Stephen Foster points out – that its financial performance continues to delight shareholders. Only the other day we had Quarter 3 numbers that revealed an astonishing 11% organic growth rate. And, a little earlier, Aegis managed with considerable aplomb to unload its margin-sapping research business Synovate on Ipsos. All of which reflects very favourably on CEO Jerry Buhlmann’s grasp of the Big Picture.

If I were him, though, I’d be a little worried about some of the Detail that keeps emerging. Granted media buying companies, with their inherent penchant for surcommission (backhanders), are more prone to financial shenanigans than other arms of the marketing services business; but let’s face it, Aegis seems more unfortunate than most. Maybe it’s simply that rivals are better at covering their tracks. Whatever, Buhlmann is beginning to look a bit of a Mole Whacker.

First we had the Ruzicka scandal, which resulted in the German head of Aegis going to jail for a number of years. Then the Rumasa affair, as a consequence of which the company had to write off over £25m it had failed to collect in time (which was rather careless, to say the least). Now comes news that 2 senior executives who used to work in its US outdoor operation, Posterscope USA, have been indicted for fraud by the federal government.

Briefly, the facts are as follows. Todd Hansen, former US division president, and James Buckley, former finance director, have been charged with a $19.75m accounting fraud that stretched over 5 years (from 2004 to 2009) apparently without being detected. The two are accused of deliberately and artificially inflating company revenues in order to meet personal performance targets involving higher salaries, bonuses and stock options. In all, Hansen is alleged to have illegally salted away an extra $1.1m, and Buckley $650,000. If convicted, they face up to 20 years in prison.

Presumably another Aegis financial restatement is on the way. Although its size is hardly likely to cause more than a ripple of embarrassment.

UPDATE: On this last point, apparently not. This is what Aegis has to say: “We can confirm that the events that led to this action will have no implications, financial or otherwise, for Aegis and its US business, as from an accounting perspective the matter was closed in 2009.” Aegis adds that it initiated the investigation into Hansen and Buckley.

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Vincent Bolloré to pick up £53m windfall in wake of Ipsos Synovate deal

July 28, 2011

The small print in Aegis’ decision to sell its market research arm Synovate to Ipsos for £525m is easily overlooked. Vincent Bolloré, principal Aegis shareholder, will take a windfall commission of £53m.

‘Commission’? Whatever the business logic on both sides of selling Synovate to Ipsos, no deal was possible without Bolloré’s say-so, as 26.5% Aegis shareholder. We now know his price, to be extracted in the guise of a 15.5p special dividend payable to all shareholders once the deal has gone through in September.

Bolloré’s opportunistic windfall fits well with his recent self-styled image as merely a “financial” stakeholder in the media buying giant, who is theoretically ready to sell out if the price is right. But don’t be deceived. Aegis, as a pure-play media planner/buyer, is now a lot more vulnerable to a break-up bid. And Bolloré, as chairman of and 33% stakeholder in Havas, has greater strategic reason to promote one than any other potential player.

Bid speculation about Publicis Groupe and WPP, which has fueled Aegis’ share-price recently, looks wide of the mark. A senior source at WPP has dismissed a break-up bid as “pure BS”, while Maurice Lévy implicitly ruled out the idea of Publicis being a prime mover in his H1 earnings call last week (although, note his cryptic point about a “game-changing opportunity in one of our operations” in the ‘M&A’ section of this interview).

A break-up bid initiated by either party would lead to severe regulatory problems. Havas, on the other hand, has every reason to snap up a global media buying operation if the price is right. The perceived problem is that Bolloré does not have the financial resources to act on his own.

That’s not to say he could not, or would not, collaborate in a carve-up. After he has picked up his windfall, of course.


Synovate ponders controversial $1.5m Sudan deal

July 2, 2011

Synovate, the research arm of Aegis Group now being exclusively courted by Ipsos, should be careful who it does business with. Particularly at a time like this.

Word reaches me that it has recently been pitching for a lucrative $1.5m slice of pie in Northern Sudan. The client in question is DAL Group, a Khartoum North-based conglomerate which handles such august brands as Caterpillar, Mitsubishi Motors, KIA Motors, Mercedes-Benz, JVC, Glaxo, Unilever and, most interesting of all (see below), Coca-Cola (since 2002 DAL has been sole Sudanese bottler and distributor of the company’s brands).

DAL Group makes claim to “strong, clear business principles and ethical values”, and I have no reason to doubt it. The problem lies elsewhere. Since 1997, the US has placed a stringent trade embargo on Sudan, with penalties for infringement ranging up to $1m and 20 years imprisonment.

From what I understand, these sanctions can be circumvented by routing the business through the EU (where they are not in force). But leading the business from the US, which seems to be what is required here, would be tricky. The idea has certainly been enough to put the wind up WPP’s Kantar – believed to be the only other research company on the short-list – which withdrew from the pitch after it failed the corporate ethics test.

My advice to Synovate? It’s not worth it.

Mind you, when it comes to ethics, Synovate’s suitor Ipsos isn’t exactly above reproach itself. It recently came to my attention that the global research company is being investigated by the Brazilian authorities over suspected infringements of employment law and, in effect, tax evasion. Ipsos is quietly trying to settle some 82 claims against it, after the Labour Prosecutor Office began an investigation into the treatment of many local employees as long-term freelances, a by-product of which is the avoidance of taxes and social benefits attached to full-time status. There’s more on this here, for anyone whose Portuguese is up to speed.


Is Ipsos poised to buy Synovate from Aegis for €550m?

May 20, 2011

A rather interesting rumour is doing the rounds of the City. And it is this: Aegis, the media buying group, is about to divest its market research operation, Synovate, for a princely €550m (£481m). The lucky recipient? Paris-based global market research empire Ipsos.

While I have no idea whether any deal will go through, let’s say it’s not a surprise that the two parties should be talking. After all, we’ve been here before – or at least, somewhere very nearby.

Back in 2009, Aegis launched a formal strategic review to determine whether or not to sell Synovate. At the time, GfK was felt to be the most likely buyer. GfK – privately held but the world’s fourth largest MR group even so – was still smarting after it came off second best to WPP in the acrimonious £1.1bn bid battle for Taylor Nelson Sofres.

But it might just as well have been Ipsos, the fifth largest, that was doing the talking. Both MR groups are in the grip of the same strategic imperative: they need to grow bigger in the wake of the 2008 TNS deal, which catapulted WPP to near top position in the world market research league table, just behind Nielsen. The consolidation question is not a ‘whether’ but a ‘when’.

What’s more we know the Ipsos management team admires Synovate and believes it would be a good fit. Don’t just take my word for it. In late 2005 Ipsos’ chairman and chief executive Didier Truchot publicly described Synovate as “a very nice and dynamic organisation.”  Of course, he didn’t go so far as to say he would actually buy it. Then again, he didn’t say he wouldn’t. He merely pointed out that it was “a little too early” to entertain such a possibility.

Truchot was at it again in 2009, when announcing a robust set of results for the previous year: he danced around the idea of buying Synovate without actually saying it.

Perhaps five-and-a-half years has proved long enough to mature his plan.

All of which does little to shed light on Aegis’ motives for selling the business, if that is what it is doing.

Admittedly, the market research division is currently an underperformer. In the latest, Quarter 1, financial results, the Media division turned in an impressive 10.1% improvement in sales, well ahead of the 7% analysts had been expecting. Synovate, on the other hand, undershot, if only by a small amount.

Furthermore, divestment would provide more ammunition in the war-chest. Aegis chief executive Jerry Buhlmann has already embarked on a strategy of shoring up Aegis’ position as a pure-player global media buyer with the £200m acquisition of Mitchell Communications.

But there is a wild card in all of this. What of 27% Aegis stakeholder Vincent Bolloré? Despite his very public disavowals of any further interest in a takeover, Aegis would surely become more, not less, tempting as a target. After all, what Havas – of which he is president and the principal shareholder – most needs is a more effective media buying operation.

UPDATE 6/6/11: Evidently the rumour was true: Aegis has just confirmed it. What matters, now the veil of secrecy has been stripped from the talks, is whether Ipsos is allowed a clear run at the acquisition. Or will others, such as Publicis Groupe, barge in with better terms? Anyone interested in the financials (Ipsos is about twice the size of Synovate) might care to look at Bob Willott’s newsletter on the subject.


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