WPP Alliance Dead With or Without Bain Deal, ADK's CEO Says

Updated on
  • No. 3 Japanese ad agency hunting for new partners, Ueno says
  • Bain offer is ‘not cheap’ given price trend for shares: Ueno

Asatsu-DK Inc.’s chief executive officer said he is determined to sever an alliance with top stockholder WPP Plc, seven months after the world’s largest advertising agency called on share owners to vote him out.

CEO and President Shinichi Ueno said in an interview that the two-decade old WPP partnership is over and Asatsu-DK is looking for new tie-ups in the industry, the latest salvo in a battle re-ignited by Bain Capital LP’s $1.3 billion bid to buy the Japanese company two weeks ago. The alliance with London-based WPP is finished, whether or not the Bain offer succeeds, Ueno, 63, said Wednesday.

Shinichi Ueno

Photographer: Kiyoshi Ota/Bloomberg

Asatsu-DK is meeting with shareholders to make the case for the Bain offer, which would take the company private, end the WPP tie-up and ease the way for a restructure, Ueno said. Asatsu-DK has said WPP has made it more difficult to carry out a revamp that’s needed to meet challenges from digital advertising offerings from giant rivals like Dentsu Inc. and from Facebook Inc. and Google.

For its part, WPP has said Bain’s offer undervalues its partner and that the plan to dissolve the venture violates the original agreement. The London-based agency’s comments helped drive Asatsu-DK’s shares higher on speculation investors may compel Bain to raise its bid. Other investors have joined WPP in opposing the offer. The second-biggest holder, Silchester International Investors LLP and Hong Kong-based hedge fund Oasis Management Co., have also come out against the deal, creating a bloc that holds about 42 percent of shares. Bain set a target of drawing at least 50.1 percent of shareholders to the tender by Nov. 15.

Bain’s offer “isn’t cheap,” considering the company’s share price over the past three to six months, said Ueno, a four-decade veteran at Asatsu.

WPP on Wednesday reiterated that the bid “significantly undervalues ADK.” WPP on Tuesday said ADK should detail the number and extent of approaches it has made to strategic and financial partners and whether they were discussed at the board level.

Silchester, the second-largest shareholder, has said a more transparent sale process would yield a higher offer for the company than Bain’s.

Read more analysis of ADK’s valuation here

Ueno said the company approached several potential buyers including a major Japanese trading company, while declining to disclose any names of the companies. He also declined to elaborate on approaches to investors, or whether the company would recommend that Bain increase its offer, saying he can’t comment while the tender offer is underway.

Unraveling Alliance

The CEO, who survived WPP’s attempt to oust him from the board in March this year by receiving 59.5 percent shareholder support for his re-election, said the relationship with WPP has unraveled over disputes related to potential partnerships in the industry. Such alliances are key in the advertising industry, where buying smaller rivals or forming partnerships can be one of the only ways to bring in much sought-after information-technology talent.

Ueno said attempts to form such partnerships in Japan and Southeast Asia, for example, were foiled by WPP’s insistence that it partner with affiliated companies that weren’t suitable and by the London-based firm’s insistence on taking a bigger share of potential earnings from such ventures.

“WPP has been putting how they can profit as their priority,” said Ueno, who has been at Asatsu since 1976. “We’re reviewing potential partnerships with other Japanese and foreign companies.” He declined to name the companies.

WPP shares rose 0.5 percent to 1,408 pence at the close of London trading Wednesday. The stock has dropped about 22 percent this year, compared with a 5.6 percent gain in the FTSE 100 Index.

ADK revenue growth has averaged less than 1 percent over the past five years. Rival Dentsu expects a third straight year topping 10 percent sales growth in 2017, driven in part by purchases of digital advertising rivals. ADK, a distant No. 3 in the $74 billion Japanese ad market, reported net income of 2.4 billion yen ($21 million) last year, compared with Dentsu’s 83.5 billion yen.

“If the performance of the company goes bad, I am ready to take the responsibility as president and resign,” Ueno said.

Bain hasn’t made any agreements guaranteeing management jobs following the tender, the Boston-based investor said by email Wednesday.

WPP’s stake in ADK had a market value of about $346 million as of the close on Wednesday, about $56 million more than its trading price the day before Bain’s offer. ADK has about 31.3 million shares in London-based WPP, with a market value of about $582 million.

“Even if the Bain deal fails, our basic thoughts won’t change,” Ueno said. “We’re not a unit of WPP.” 

— With assistance by Rebecca Penty, and Tom Redmond

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