Japan's Dentsu to Acquire Aegis Group for $4.9 Billion

Deal Gives Asian Advertising Giant Stepped-Up Profile in Europe, U.S.

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Dentsu Inc. is buying London-based Aegis Group in a cash deal worth $4.9 billion, the companies announced Thursday. It's the biggest acquisition yet for the Japanese advertising giant that has become increasingly assertive as it seeks to extend its influence globally.

Dentsu will pay 240 pence a share in the acquisition, 48% over Wednesday's closing price. Aegis, which has long been considered a target for acquisition, said its directors would unanimously recommend the deal to shareholders for approval. The deal was expected to be finalized by fourth quarter of this year.

Jerry Buhlmann

Aegis CEO Jerry Buhlmann called it a "transformational deal," the first to be born in the digital age.

"Together we're No. 1 in Asia Pacific, No. 2 in Western Europe, the fastest growing agency network in the U.S. and a growing digital leader," he said. "Together, the future looks very bright."

Tadashi Ishii
Tadashi Ishii

Said Tadashi Ishii, Dentsu's president and CEO: "Dentsu and Aegis will be the market leader in the Asia-Pacific region, enjoying a strong presence across Europe and the fastest growing agency network in the US. ... Jerry and I have huge ambitions for a truly client-focused global communication network built in the digital age, and are looking forward to further innovating our business and continuing to contribute to our clients' success."

Combined, Dentsu and Aegis' clients include about 75 of the top 100 advertisers in the world, company executives said on a conference call with reporters.

Vincent Bollore, Aegis Group's largest shareholder with a stake of nearly 30% in the business, sold half of his shares to Dentsu and agreed to sell a further 5% stake. The deal started when Dentsu approached Aegis' management, who introduced Mr. Bollore to the Japanese company's executives later in the discussions, said Tim Andree, senior VP of Dentsu Inc.

Traditionally known as a Japanese agency network serving Japanese clients at home and abroad, Dentsu has taken clear steps to establish overseas footholds as Japan faces dim prospects for long-term domestic growth.

Mr. Andree, an American with extensive experience living and working in Japan, leads Dentsu Network, an entity that includes all agencies in markets outside of Japan. Under Mr. Andree's guidance, Dentsu has acquired top-quality U.S. shops including McGarryBowen, Attik, Firstborn and 360i and its parent Innovation Interactive.

Though Dentsu has been aggressive about overseas growth, business outside of Japan composed only 16.2% of its revenue in 2011, up from 12.8% in 2006. Dentsu's percentage of revenue from the U.S. jumped to more than 6% in 2010 from 1.5% in 2006.

Mr. Andree defended the hefty price tag on the Aegis deal. "It's a full but a fair price for a company that is performing at the top of the industry in both growth and margin, and the composition of the company that is digital. ... We're confident in the future of the business."

He also denied that such an acquisition was meant to be a challenge to competitor WPP. "We believe if we focus on our clients and the ability to provide them with more capabilities and more services in more markets and do that with best-in-class offering, the competitive dynamics will take care of themselves. We don't focus on scale or size or growing against any particular group, the results will take care of themselves if we focus on our clients."

Dentsu received a cash infusion in February this year, when it ended a relationship with Publicis Groupe. The Paris-based holding company bought back 18 million of its own shares from Dentsu for $848.5 million.

Aegis includes five network brands -- Carat, iProspect, Isobar, Posterscope and Vizeum. Its 12,000 employees in more than 80 countries will join Dentsu's 21,600 staffers. Dentsu has a presence in 29 countries.

No changes to the management structure were expected at Aegis, Mr. Buhlmann said, adding that he and top executives intended to stay in place until at least the end of 2013.

Aegis saw 20% revenue growth in 2011, ending the year with $1.5 billion. Carat won the nearly $4 billion GM global media account earlier this year.

The cash offer will need 75% shareholder approval in a vote that will take place on Aug. 16.

Citi points out in an analyst note that this deal may have implications for Mr. Bollore's Havas. "For Havas, given it is 30% owned by Bollore and this deal leaves it as the remaining smaller global agency network, this may be viewed as the next potential target in the global agency space," the bank wrote in an early morning analysis of the Dentsu-Aegis deal.

Emma Hall in London contributed to this report.

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