Readers may be forgiven for needing a quick refresher on what’s going on with M&C Saatchi’s takeover drama. After all, the long hot summer has been rather distracting and, like a TV show taking a mid-season break, someone seemed to have pressed the pause button on the plot.
(The story so far: the Golden Square crew, having spent months repelling the advances of major shareholder Vin Murria, thought they had been rescued by Next 15, but then their white knight’s share price faltered, which left them unable to recommend its bid.)
The pauser is the UK Takeover Panel, which decided in July that it needed to intervene to help M&C Saatchi Group shareholders on the basis that the lack of co-ordination in the timetables of the two rival bids was preventing them from judging each on its merits.
The hold-up means the crescendo of developments that was expected this week has receded into the autumn – although Murria’s investment vehicle AdvancedAdvT managed to inject some drama after all when it came out swinging on Monday (15 August) with a threat to vote against the Next 15 bid.
How simplicity slipped away
It’s safe to say that M&C, which was founded in 1995 as a breakaway from Saatchi & Saatchi and famously prizes “the brutal simplicity of thought”, is probably not enjoying the brutal complexity of (being) bought.
Its future has been cloudy for most of the year, which opened with it receiving a preliminary takeover approach from Murria and AdvancedAdvT in the first week of 2022.
M&C’s directors have consistently opposed Murria’s deal, first decrying how it undervalued their company and later raising concerns about strategy and cultural fit.
The clouds parted when Tim Dyson, chief executive of Next 15, won over M&C’s top executives and board directors to his takeover proposal at a secret meeting in London in the spring. They agreed to pledge their own shares in support of the deal, including chief executive Moray MacLennan with his 0.5% stake in the company. Next 15 went public with a £310m offer in May and all seemed relatively rosy.
Unfortunately, in the eyes of those who view Next 15 as a more attractive home for a creative business than AdvancedAdvT, shareholders and financial markets can have a greater say in these things.
So it has proved with the Next 15 offer, which is structured as mainly a slug of new Next 15 shares with a small chaser of cash. The problem for M&C Saatchi is that Next 15’s share price fell in the wake of the deal announcement, with the latter’s existing shareholders potentially concerned about dilution and the deteriorating global economic outlook.
Clouds regathered, and after only four weeks M&C’s board felt forced to withdraw its recommendation that shareholders accept the Next 15 offer and start talking about how the company still had strong prospects if it remained independent.
The reality is that its future lies in the hands of its shareholders, who will sooner or later decide whether they want to take the Next 15 deal, or the AdvancedAdvT deal, or trust in M&C’s bravado and have their jam another day.
It may be that they do end up taking the third option. Takeover rules pretty much prevent either suitor from improving their offer at this stage in the process, while the amount each would end up paying depends partly on what happens to its own share price (investor enthusiasm for listed marketing businesses has cooled because of economic jitters, despite groups such as WPP and Publicis Groupe upgrading their own forecasts ).
So when are the crucial votes?
The fact is nobody knows yet. Until the Takeover Panel’s intervention, 13 August was the deadline for shareholders to either accept AdvancedAdvT’s offer or see it lapse, and they would not have had a chance to vote on Next 15’s offer until 19 August.
Now those dates are meaningless because Next 15 and M&C have decided they are going to put off their process until they receive full international regulatory clearance for the deal. Since they haven’t yet heard from the US regulator (though they have green lights from other countries), there is no date yet set for a vote.
And that in turn means there is no date yet for the new deadline for accepting the AdvancedAdvT offer, because the Takeover Panel decided that deadline must be four business days before the final approvals in the Next 15 offer process (which will take the form of two votes on the same day, one at a legal meeting and the other at an M&C Saatchi general shareholder meeting in a process known as a scheme of arrangement).
What M&C and Next 15 have said is that they are aiming for those final meetings to take place by 31 October, rather than by 10 September as originally planned.
Boxing clever or on the ropes?
Meanwhile, no love continues to be lost between the M&C Saatchi board and Murria, who was unceremoniously dropped as deputy chair in early June after Next 15 turned up.
M&C Saatchi followed this up on 28 June with a jab of a defence document against Murria’s bid. Taking inspiration from its 1992 “Labour’s double whammy” boxing-themed election poster for the Conservatives, it told shareholders to ignore her cash-and-shares offer on the grounds of “low price” and “high risk.”
The board presumably enjoyed telling the stock market the company had grown first-half net revenues by 10% year on year, on 28 July, and it was confident of hitting its target £31m headline profit before tax for the whole year.
But the board may have to invite Murria back into the fold if shareholders reject both bids and she retains her 22.3% stake.
This, it admitted when it un-recommended the Next 15 offer, would allow Murria to requisition general meetings to propose changes to the board and demand changes of strategy. “Whether or not any such requisitions are successful, they can prove to be a significant distraction to the company, its management team and directors,” it said.
One source of comfort may have been the idea that Murria, having picked up most of her holding cheaply in 2020 in the wake of M&C’s previous accounting woes, could be happy to take Next 15’s money and go away with a profit.
That hope has just been squashed by AdvancedAdvT’s threat to vote against the Next 15 deal because its current implied value “does not reflect the value of foregoing control and the significant synergies available to NFC [Next 15]”.
The jilted suitor was effectively saying that a £247.6m valuation of M&C Saatchi (based on Next 15’s closing share price of 961p on Friday 12 August) was not enough for it to stand aside.
AdvancedAdvT’s own offer valued M&C Saatchi higher, at £255.6m, when it was officially put forward in May (it gives M&C shareholders a choice between taking only AdvancedAdvT shares or a mix of mainly shares with some cash).
AdvancedAdvT’s share price has also dipped since then, but not by as much as Next 15 shares have, lowering the current value of its bid to £238.5m (based on the 12 August closing price of its shares).
There is not much daylight between the two bids financially, so it looks like Murria’s threat to torpedo the Next 15 attempt could carry decisive weight in shareholders’ calculations.
However, there are several weeks left for matters to take another turn. M&C is trying to get its shareholders to stick a spoke in Murria’s wheel by pressuring AdvancedAdvT to seek clearance from the US Committee on Foreign Investment (CFIUS), as Next 15 has done.
M&C Saatchi has claimed that AdvancedAdvT’s omission of this step pre-acquisition is a risk for shareholders who accept Murria’s offer, on the basis that its own subsidiaries’ work for the US government makes it possible the CFIUS will want to review the deal after it closes.
On Tuesday morning AdvancedAdvT retorted that it had taken “appropriate expert advice on whether to make a voluntary filing” to CFIUS, and that it had now secured all mandatory regulatory approvals.
So long, simplicity. The whole affair seems like it could have a longer gestation period than even Saatchi & Saatchi’s Pregnant Man – with no certainty about the outcome.
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