July 16 (Bloomberg) -- Ipsos SA said in a London lawsuit that Aegis Group Plc inflated profits and failed to disclose tax and fraud probes at Synovate before it sold the market research unit in 2011 to Ipsos for 525 million pounds ($792 million).
Aegis, a Dentsu Inc. unit, didn’t pay share bonuses to Synovate staff to “artificially inflate” profits and gave a misleading account of customer contracts, Ipsos said in an April lawsuit released by the court this week. An investigation into fraud at Synovate’s Mexican business, accounting irregularities in Romania and tax probes in at least three countries also weren’t properly disclosed before the deal, Ipsos said.
Ipsos’s acquisition of Synovate created the world’s third-largest global market research company. Paris-based Ipsos, which does polling for newspapers and private clients, is seeking as much as $100 million from Aegis, saying it wouldn’t have paid as much for the division if the issues were disclosed.
Aegis didn’t inflate profit figures and information about Synovate’s customers was “fairly disclosed to Ipsos in the disclosure letter,” the company said in its own court filings. The London-based media company said it passed on a report about Mexico to Ipsos at about the same time it received it.
There was no reason to pay the stock awards to Synovate staff in light of the unit’s impending sale, Aegis said.
Louise Evans, an Aegis spokeswoman, said the company refuted Ipsos’s allegations in court filings and declined to comment further. Ipsos Chief Financial Officer Laurence Stoclet declined to comment beyond confirming the lawsuit.
Synovate Mexico from 2008 through 2011 “fraudulently inflated its revenue and profit figures,” Ipsos said in court documents. Employees entered “ghost” contracts and intercepted payments, while a report found 37 “questionable projects.” The matter is the subject of a criminal probe in Mexico, Ipsos said.
Ipsos is reviewing accounting practices at Synovate Romania where it found evidence the company had invoiced services it didn’t provide. Aegis’s disclosure was inadequate or inaccurate, the company said in the documents.
“A merger like that of Ipsos and Synovate takes time, even if its physical and formal execution is swift,” Ipsos said in February 2013, explaining why it had missed sales forecasts in the last quarter of 2012.
The case is Ipsos v. Aegis Group, High Court of Justice, Queen’s Bench Division, Commercial Court, Case No. 13-477
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