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WPP has agreed to back down from legal action and sell its stake in Asatsu-DK to Bain Capital, removing the largest obstacle to the US private equity firm’s $1.3bn tender offer for Japan’s third-largest advertising agency.
Bain said in a statement the UK-listed ad group indicated it would, pending successful settlement of the tender offer, terminate its two-decade-old alliance with ADK and withdraw legal proceedings brought against the Japanese agency, with which it has had worsening relations over several years.
If ADK is taken private, Bain said it would discuss an investment by WPP as a non-controlling minority shareholder in a Bain Capital investment vehicle.
The deal has contributed to a record $31.3bn spent this year on acquisitions of Japanese companies by private equity firms.
ADK maintained it was necessary to break off its 20-year cross shareholding and business alliance with WPP and sell its stake in the UK-listed company to seek partnerships in digital advertising and in preparation for overseas acquisitions under its new private equity owners.
The partnership, which gave WPP chief executive Martin Sorrell’s advertising empire access to the Japanese market, resulted in ADK holding a stake in WPP worth about $550m, and WPP taking almost a quarter of ADK.
WPP originally said it had no intention of selling at the per-share tender price of Y3,660 offered by Bain in early October, arguing it “significantly undervalues” ADK. The company in November launched legal proceedings against its Japanese partner for the way it was attempting to break the relationship, with Sir Martin telling the Financial Times: “We think they haven’t broken the agreement in the right way.”
ADK’s president Shinichi Ueno expressed confidence his company could withstand any legal challenge. “Having consulted with several law firms, we are fully prepared for it so we think we have a good chance to win,” he told the FT at the time.
Bain said it was pleased WPP had shown its support for an “orderly termination” of the alliance between ADK and WPP. “We now hope ADK’s other shareholders will recognise the attractive valuation and liquidity opportunity presented in our fair and fully priced offer, and tender their shares,” David Gross-Loh, a managing director at the private equity firm, said in a statement.
The closing date for the tender offer is December 6.
London-based Silchester International, which holds a 17.3 per cent stake in ADK, previously said the Bain offer “substantially undervalues” ADK and said the Japanese ad company’s management had not looked hard enough for alternative buyers. The fund could not be reached for comment.
The ADK deal is the fourth-largest private equity buyout in Japan in 2017 and adds to what has already become a record year for private equity investment in the country, with $31.3bn of deals across 72 companies in the works, according to data from Dealogic. That figure is beefed up by the Bain-led consortium’s $17.7bn acquisition of Toshiba Memory Corporation, which is the largest Japan-targeted private equity deal on record.
Expectations the agreement would be finalised helped push ADK shares as high as the tender offer price in Tokyo on Tuesday, before ending 4.7 per cent higher at Y3,645.