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Mitchell's crafty deal

Stephen Bartholomeusz

Published 10:38 AM, 30 Jul 2010 Last update 10:06 AM, 30 Jul 2010


Harold Mitchell has spent the past 34 years building the dominant media buying business in the country. After years of speculation that he wanted to sell Mitchell Communication Group to one of the global media agencies, he has finally done it, but not in a straightforward fashion.

The $363 million deal unveiled today with Britain’s Aegis Group – $378 million if MCG’s final 5 cents a share dividend is included – could have enabled Mitchell and his family to cash out the 40 per cent of MCG they control and retire very comfortably.

Instead he plans to exchange his 20 per cent of MCG and the 10 per cent he controls through the Harold Mitchell Foundation for shares in Aegis, one of the world’s larger media communications. He will emerge as one of Aegis’ largest shareholders, with about 4.5 per cent of its capital, assuming the other MCG shareholders, almost all retail shareholders, prefer cash.

Mitchell’s plan to take scrip, his previous dalliances with global groups and his willingness to endorse an offer of $1.20 a share that’s only 15 per cent above where MCG shares were trading ahead of its trading halt this morning (albeit a 30 per cent premium to the volume-weighted average price over the past three months) would tend to suggest that he doesn’t see the deal as an exit strategy.

Mitchell, who will become chairman of the combined Aegis Media Pacific business if the merger, to be effected through a scheme of arrangement, is approved, has granted Aegis an option of 19.9 per cent of MCG and undertaken to hold at least 85 per cent of the shares he receives in Aegis for two years as well as entering an exclusivity agreement. He’s not looking to help attract a competitive bid.

That signals that he sees the deal as more merger than takeover, although there is no question that MCG will be subsumed within the far larger Aegis, which has a market capitalisation of about $2.4 billion.

The reason Mitchell may have considered selling in the past, and has responded favourably to the Aegis offer, is probably related to the dominance of his business in this market and the difficulty of expanding its presence offshore in the face of competition from the global groups.

The rapidly growing Aegis, with a strong digital business and a focus on media buying, is probably the best fit of any of the global advertising and media buying groups with MCG’s positioning and strategies. It is suggested that Mitchell and the relatively new Aegis chief executive, Jerry Buhlmann, share very similar views about how their businesses should develop.

Aegis has a meaningful Australian business, based on its international client base, but the two groups are highly complementary. They have a number of clients in common, like ANZ, where MCG has the domestic business and Aegis the international, but few if any conflicts. There ought to be significant opportunities from combining the client bases and creating a larger Asia Pacific presence with enhanced capabilities.

Mitchell’s willingness, not just to sell, but to roll over his entire shareholding into Aegis scrip provides an insight into the strength of his conviction of the combined group’s prospects and his ambition to help realise them.




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