The Stagwell Group late today proposed a merger with MDC Partners in a move that would combine two firms led by Mark Penn into a $2 billion agency group.
The combined firms would generate $35 million in cost synergies, Penn estimated in a letter delivered to MDC's board Thursday afternoon that identified potential “operating and overhead efficiencies.”
"I am excited about the potential combination of MDC Partners and Stagwell and expect the combined company will deliver meaningful shareholder value creation, accelerated growth and enhanced services to clients," he stated in a press release.
Stagwell’s announcement said it expects MDC's board will form a special committee consisting of independent directors, and that the special committee would retain independent financial and legal advisors to consider the proposal. MDC Partners in a statement Friday morning confirmed it would form such a committee.
"The special committee will act in the best interests of the company and our shareholders and will evaluate the proposed transaction in partnership with our independent advisors," Irwin Simon, Lead Independent Director of MDC, said in a statement. "We are committed to maximizing shareholder value and, if it makes sense to proceed, we will do so in a thoughtful and diligent manner."
Penn has led MDC Partners as CEO since March 2019 after Stagwell, which he leads as managing partner, invested $100 million in the holding company. MDC’s agencies include Anomaly, 72andSunny, CPB and Doner. Penn formed Stagwell in 2015 as a holding company that would focus on advertising, research, data analytics, PR and digital marketing companies. Its holdings include Code and Theory, FINN Partners and ForwardPMX.
Penn added the post of MDC chairman in April 2019.
Stagwell controlled 29.4 percent of MDC outstanding common stock as of March 31, assuming conversion of non-voting preference shares into common stock.
The merger proposal values MDC common stock at $4.25 a share on a fully diluted basis and implies a premium of 263 percent to MDC's closing price of $1.17 per share on June 24, according to the press release.
Under Stagwell’s merger scheme, Stagwell would trade Stagwell’s existing agency holdings for MDC shares, creating a $2 billion revenue agency company. Stagwell would receive 335.5 million MDC shares.
MDC, with 2019 worldwide revenue of $1.4 billion, ranks as the world’s 15th largest agency company, according to Ad Age Datacenter. Stagwell ranks as the world’s No. 23 agency company with 2019 revenue of $627 million.
Stagwell’s letter to MDC’s board said: “The Stagwell management team looks forward to further exploring the benefits of a transaction on a friendly basis, and we are open to discussing all issues to determine if we can find a basis for moving forward.”
But Stagwell’s announcement also showed it is playing its clout, saying Stagwell “is not prepared to support, consent to or vote in favor of an alternative transaction by MDC, including an alternative business combination or sale transaction.”
MDC’s stock has struggled to gain traction with investors. It closed Thursday at $1.15 a share, not much above the multi-year low of $1.01 hit in April amid the nation’s COVID-19 shutdown. The stock surged late Thursday in after-hours trading following Stagwell’s merger proposal announcement, jumping to $3.12.
Under Penn’s tenure as CEO, MDC has worked to simplify its structure. In the first quarter, the company reorganized its management structure, pulling together various agencies into networks. Penn appointed key agency executives to lead each network. For instance, one of the so-called alliances formed in January put Anomaly Founding Partner and Executive Chairman Carl Johnson over a group of shops that includes digital innovation shop Y Media Labs; design and branding agency Mono; consumer marketing communications, PR and digital firm Hunter; creative experiences shop Relevent; and healthcare agency Concentric Health Experience.
Penn has pursued cost cuts through moves like consolidating office space into newly leased offices at One World Trade Center in New York.
This story has been updated with a statement from MDC Partners