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ADK: ‘We will go ahead with Bain Capital offer regardless of WPP’

The Japanese advertising agency at the centre of an ownership row with WPP has opened up about its 20-year relationship with the holding company, saying their current relationship is nonsensical.

Creative digital shop ADK said it will go ahead with its plans to have the 25 per cent stake held by WPP sold to private equity firm Bain Capital “regardless of any objections” by Sir Martin Sorrell’s group.

In a statement to the press, ADK said it had tried to work for both its and WPPs’ “mutual benefit” for 20 years, but that the “expected synergies never fully materialised”.

Now, the agency has argued that the advertising industry has changed so much since WPP bought the stake – said to be worth US$290 million – that their business partnership “simply no longer makes sense”.

Boston-headquartered Bain Capital has offered to buy ADK for US$1.35 billion in a deal that would make the agency privatised and delisted from the Tokyo Stock Exchange.

However, WPP contested the potential sale in a press statement released last week, whereby the holding company accused Bain of “significantly undervaluing” the agency’s share price.

At the same time, the company said ADK was “improperly attempt[ing] to terminate its co-operation and business alliance agreement with WPP”  and was going “against shareholder advice”.

In a public rebuttal to WPP, ADK has hit back at the accusations, saying: “ADK approached multiple potential financial and strategic partners to find the best outcome for the company and its shareholders. Through this process, it was determined that Bain Capital presented the most credible proposal, and one that would offer the most price maximisation for shareholders.

“None of ADK’s directors and management team has any agreement with Bain Capital, including any agreement regarding continuing appointment, employment or remuneration.

“Bain Capital’s offer price was heavily scrutinised. ADK obtained a valuation report and fairness opinion from two independent advisors, and ADK’s independent directors were actively involved in examining the
price and participating in a number of rounds of negotiations between ADK and Bain Capital, which resulted in a meaningful price increase.”

ADK President Shinichi Ueno

The statement added: “This right of termination has been scrutinised by the attorney involved in negotiating the agreements, as well by multiple major Japanese law firms, all of whom confirm its validity. ADK has confidence that the termination right will stand. ADK will require WPP to fulfil its contractual obligations to sell its shares in ADK.

“It should also be noted that the tender offer by Bain Capital will move forward for the benefit of all shareholders regardless of any objections by WPP to the termination or termination rights of the alliance.”

Meanwhile, ADK also holds a 2.4 percent stake in WPP worth US$576 million, which the agency has now indicated it wishes to sell. The agency claimed: “[The shares] resulted in low return on equity and a problematic capital structure that is disproportionate to ADK’s core operations.

“The fact that this asset makes up a large portion of ADK’s market value means that the company is unnecessarily exposed to WPP’s share performance and currency exchange rates. To continue to hold the WPP shares would cause ADK to continue to face significant financial uncertainties in the future.”

According to the FT, Bain’s attempted deal marks the first time that an advertising agency has been the target of a major buyout in Japan.

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