ADK versus WPP: A breakdown of the statements exchanged so far

Asatsu-DK (ADK) has responded to statements made regarding the tender offer Bain Capital made for ADK shares earlier this month. The move follows a statement made by WPP last week reiterating that the tender offer “significantly undervalues ADK”, as other shareholders have subsequently stated both publicly and privately.

Countering undervaluation claims, ADK said that Bain Capital’s offer price was “heavily scrutinised”. It explained that it had obtained a valuation report and fairness opinion from two independent advisors. ADK’s independent directors were also actively involved in examining the price and participating in a number of rounds of negotiations between ADK and Bain Capital. This resulted in a “meaningful price increase”.

“Furthermore, ADK has not agreed to any deal protection mechanism in favour of Bain Capital,” the ADK statement read. It added that ADK’s independent directors had evaluated this transaction process and unanimously determined that it has been fair and rigorous. ADK’s board voted in favour of the tender offer on 2 October 2017, with only one dissenting vote by a director nominated by WPP.

Did ADK fully consider other options?

A second point made by WPP was whether or not it considered or discussed “any alternative bona fide offers or proposals for the company” which may be of greater benefit to the stakeholders in the business including its clients and its people. The statement further questioned if ADK’s consideration has been “management’s concern about their own position in the future?”

“Has Bain Capital ever given ADK’s management reassurance about their own position as part of this transaction and, if so, should not those terms be disclosed?” the WPP statement added.

Thirdly, WPP said ADK’s management have consistently “resisted opportunities” to improve the performance of its overseas operations and exploration of significant digital opportunities. Instead, the agency preferred to invest in “disastrous acquisitions and consolidations” such as Gonzo and Bungeisha. WPP added that the costs of which “have not been fully exposed”.

This is “along with the disposal of DAC in 2011 at a lower price than WPP’s indication and the reduction of ADK’s stake in Video Research Interactive,” the statement said.

In ADK’s statement, the agency said it approached multiple potential financial and strategic partners to find the best outcome for the company and its shareholders. Through this process, the agency added that 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,” ADK said in response.

“Improper” attempt to terminate relationship?

Another point made by WPP was that ADK had “improperly attempted to terminate” its co-operation and business alliance agreement with WPP. According to WPP, ADK knew “full well” that it cannot do so, as on previous occasions it had abided with this instruction.

“ADK’s effective sale of its holding in WPP has attempted to circumvent the stock purchase agreement and contradicts explicit advice from key shareholders that doing so would trigger damaging and ill-advised tax charges. Others have also noted the cancellation of dividends promised on 17 August 2017,” the WPP statement said.

To this ADK responded that its agreements with WPP regarding the capital and business alliance are “governed by Japanese law”. This provides a specific mechanism for termination by either party at any time by giving not less than 12 months’ written notice.

“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,” the ADK statement read, it added:

ADK has confidence that the termination right will stand.

“ADK will require WPP to fulfill 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,” the ADK statement added.

ADK’s statement also added that the WPP shares held by ADK have resulted in “low return on equity and a problematic capital structure that is disproportionate to ADK’s core operations”. It said that the continuation in holding WPP shares would cause ADK to “continue to face significant financial uncertainties in the future”.

“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,” the ADK statement said.

View ADK’s full statement here and WPP’s full statement here.

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