MDC Partners’ stock closed at just $1.17 on June 24, the day before its biggest shareholder, The Stagwell Group, proposed a merger in which MDC would buy Stagwell’s agencies by issuing more MDC stock.
Under Stagwell’s math, the deal values MDC at $4.25 a share, a nifty 263 percent premium over the pre-deal price.
How do you get from here to there?
Let’s start with MDC. The company last year had worldwide revenue of $1.4 billion, putting it No. 15 on Ad Age Datacenter’s ranking of agency companies. But MDC has had operating and other challenges over time. MDC reported a net loss of 25 cents a share last year and 3 cents a share in the first quarter. MDC’s market cap—the value of outstanding shares—was below $90 million before Stagwell proposed its deal.
Stagwell disclosed 2019 worldwide revenue of $627 million in Ad Age’s Agency Report, placing it No. 23 among agency companies. Stagwell is private, so there’s no public market for its stock. But in its announcement, Stagwell claimed an “equity value” of $1.424 billion.
Under Stagwell’s proposal, MDC would buy Stagwell by issuing a whopping 335.5 million MDC shares.
To put that in perspective, MDC as of last month said it had 74.5 million outstanding shares (including restricted stock awards). Stagwell, MDC’s largest shareholder, owns 14.4 million of those shares. (Add in Stagwell’s cache of MDC preference shares that can be converted into common stock, and MDC had an effective 29.4 percent stake in MDC as of March 31.)
The companies are closely tied. Mark Penn, Stagwell’s managing partner, is MDC’s chairman-CEO.
In its deal calculation, Stagwell assumes MDC has a diluted share count of 76.1 million shares (outstanding shares, restricted stock and restricted stock unit awards, stock appreciation rights).
Stagwell’s math is quite easy:
Post-merger, MDC would have 411.6 million shares—76.1 million from the old MDC (including Stagwell’s pre-deal MDC stake) plus 335.5 million shares issued to Stagwell in the new deal.
Existing MDC shareholders would own 18.5 percent of the merged business (76.1 divided by 411.6).
Stagwell says the Stagwell business it wants to sell to MDC is worth $1.424 billion, representing an 81.5 percent stake in the merged business (335.5 divided by 411.6).
If 81.5 percent of the expanded MDC is worth $1.424 billion, then 100 percent of the expanded MDC would by extension be worth $1.747 billion.
That in turn implies the 18.5 percent stake held by existing MDC shareholders would be worth $323 million ($1.747 billion minus $1.424 billion).
Take $323 million, divide it by 76.1 million shares, and you get to Stagwell’s final number: an “implied MDC offer price per share” of $4.25, which is 263 percent above MDC’s June 24 closing price.
Such a deal.
