Media Square has agreed to accept a smaller initial consideration for the sale of some of its research businesses to IQ Holdings. The company has also agreed to take a larger portion of the initial consideration in shares.
© Fintellect Ltd
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An attempt to protect Next Fifteen Communications Group from adverse currency movements is likely to have cost about £2.6 million, according to a company announcement this morning.
The group has substantial operations in the United States and took out hedging contracts in August 2008 as a protective measure. But the subsequent big fall in the value of sterling took the group by surprise.
Normally hedging contracts would involve buying or selling a foreign currency ahead of the date on which client revenue is actually received in that foreign currency. In Next Fifteen's case it would appear to have contracted to buy dollars at their August 2008 value and thereby avoid the risk of damage being caused by any subsequent rise in the value of sterling. In the circumstances Next Fifteen would have been better off doing the opposite (or not hedging at all) as sterling lost substantial value during the period.
The charge against the group's results for the half year to 31 January is expected to be £1.2 million with a further £1.4 million loss expected to hit results for the second half. Before allowing for the currency losses, the group still expects its performance for the full year to be "ahead of analysts' estimates".
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Shares in M&C Saatchi lost half of their value during the last three weeks as the investment community continued to shun smaller listed marketing services groups. The price plunge seems to have ignored last September's statement by the company that its global network remained strong and the outlook for the full year remained in line with management expectations. At the time the company acknowledged that the economic environment was "increasingly challenging" and that the effects were being felt in its US and Spanish businesses. It also confirmed that the loss of its Australian Tourism account would have an adverse effect and in December the Australian agency declared seven staff redundant as Mike Abel took on the chief executive role there. But in the absence of any further update - as would be required if its financial performance for 2008 was likely to fall short of previous expectations - it must be assumed there is no more dirty linen waiting to be washed and that market concerns revolve around future prospects rather than the past. Indeed the company believes it is simply a victim of the current stock market gloom and economic recession that has wiped out any premium value previously attaching to its shares. Some of its high profile UK clients have already revealed poor performances - not least the Dixon/Currys group and Royal Bank of Scotland - and there may also be some concerns about the volume of advertising that will be handled by Walker Media in future months. Looking back, it is conceivable that the group's profit for 2008 will be subject to an impairment charge if either the estimated £30 million cost of acquiring brand consultancy Clear Ideas or the price paid for an enlarged stake in Walker Media in July 2007 turns out to have been in excess of what the projected future profit streams can now support. However, market analysts tend to ignore such items when pricing a company's shares on the grounds that they do not affect current cash flow. Nevertheless, if over time an acquisition cost could not be justified by the return it generates, it may then be argued that the price paid was excessive. Clearly it is too soon to make any such assertion. The only other aspect of the M&C Saatchi balance sheet to keep an eye on is its working capital position. Last June there was an adverse gap between short term obligations and readily realisable assets of £8 million, but there are no obvious grounds to assume this has deteriorated further. Indeed it may have improved and, with an almost debt-free balance sheet, it should not be difficult to borrow a few pounds on a longer term basis if ever the need arises - even in the current climate. © Fintellect Ltd
Shares in M&C Saatchi lost half of their value during the last three weeks as the investment community continued to shun smaller listed marketing services groups.
The price plunge seems to have ignored last September's statement by the company that its global network remained strong and the outlook for the full year remained in line with management expectations. At the time the company acknowledged that the economic environment was "increasingly challenging" and that the effects were being felt in its US and Spanish businesses. It also confirmed that the loss of its Australian Tourism account would have an adverse effect and in December the Australian agency declared seven staff redundant as Mike Abel took on the chief executive role there.
But in the absence of any further update - as would be required if its financial performance for 2008 was likely to fall short of previous expectations - it must be assumed there is no more dirty linen waiting to be washed and that market concerns revolve around future prospects rather than the past.
Indeed the company believes it is simply a victim of the current stock market gloom and economic recession that has wiped out any premium value previously attaching to its shares. Some of its high profile UK clients have already revealed poor performances - not least the Dixon/Currys group and Royal Bank of Scotland - and there may also be some concerns about the volume of advertising that will be handled by Walker Media in future months.
Looking back, it is conceivable that the group's profit for 2008 will be subject to an impairment charge if either the estimated £30 million cost of acquiring brand consultancy Clear Ideas or the price paid for an enlarged stake in Walker Media in July 2007 turns out to have been in excess of what the projected future profit streams can now support.
However, market analysts tend to ignore such items when pricing a company's shares on the grounds that they do not affect current cash flow. Nevertheless, if over time an acquisition cost could not be justified by the return it generates, it may then be argued that the price paid was excessive. Clearly it is too soon to make any such assertion.
The only other aspect of the M&C Saatchi balance sheet to keep an eye on is its working capital position. Last June there was an adverse gap between short term obligations and readily realisable assets of £8 million, but there are no obvious grounds to assume this has deteriorated further. Indeed it may have improved and, with an almost debt-free balance sheet, it should not be difficult to borrow a few pounds on a longer term basis if ever the need arises - even in the current climate.
Burst Media, the US-based on-line advertising sales company whose shares are listed on AIM in London, has reversed its month-old decision to seek buyers for the company and is now talking about exploring potential acquisitions.
Burst explained its about-turn in a statement saying: "After careful consideration, the board has decided that, in view of its current trading performance and strong balance sheet and the challenging macro economic climate, selling the company at this time would not be in the best interest of Burst shareholders."
Burst is still sitting on a cash pile of about $10 million, but has failed to generate an operating profit since its flotation on the London stock market in 2006. This week it claimed it would report a result no worse than break even for 2008 before interest depreciation, amortisation and exceptional items. The audited result will not be announced until 8 April.
Simultaneously the company announced it had appointed Jim Garrity to the board as a non-executive director. Garrity comes from a technology marketing background, having previously worked for IBM and Compaq.
An attempt to float the company in the US in March 2000 was abandoned after losses were incurred.
A US company in which Omnicom Group has a 4.2% shareholding is facing the possible suspension of its NASDAQ share listing after its auditors challenged its policy for recognising revenues in its accounts.
The company involved is the California-based talent management software developer and consultancy Taleo Corporation. As a result of the auditors' challenge, Taleo was unable to file its September 2008 quarterly financial report with the US Securities Exchange Commission within the prescribed time period. Taleo was instructed to submit a plan to the SEC by 13 January showing how the company would restore compliance with SEC filing rules and avoid suspension of its share listing. That plan would then have to be reviewed by SEC staff. No further announcement has been made so far.
It is not yet completely clear whether the review of Taleo's revenue accounting policy will extend back beyond 2008, but a company press statement implied that it would. According to the statement, auditors Deloitte & Touche requested Taleo to re-evaluate whether the "historical and current practices with respect to the timing for recognition of application and consulting revenues were appropriate under generally accepted accounting principles in the United States".
Taleo's share price has plummeted since the announcement and the company is threatened with a multitude of legal actions.
Taleo reported its first profit in 2007 after becoming a publicly listed company in October 2005. But the group then announced an unaudited loss of $5.5 million for the nine months to 30 September 2008. That figure may now be revised after Taleo confirmed on 23 February that it would be restating its financial results for 2006 and 2007 and was in continuing discussions with the SEC pending finalisation of its overdue filing for the quarter to 30 September 2008.
Former Omnicom executive Michael Tierney sits on the board of Taleo. Tierney is also chief executive officer of Seneca Investments - the investment holding company into which Omnicom offloaded several under-performing digital agencies when the first dotcom bubble burst some years ago. Tierney was recently reported to have a 40% shareholding in Seneca and Seneca had a 9.8% shareholding in Taleo when it was first listed on NASDAQ.
Seneca is now said to be in the process of liquidation. As a result part of the Taleo shareholding has been distributed to Tierney and a 4.2% stake appears to have been assumed by Omnicom.
© Fintellect Ltd (updated 26 Feb 09)
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IQ Holdings shareholders have approved the reorganisation and enlargement of its share capital and the acquisition of three previously loss-making research businesses from Media Square announced last month (for details see Who would believe it?). The share placing that formed part of the reorganisation is expected to be finalised by the end of January.
Under the terms of the deal with Media Square, IQ will pay an initial £750,000 in cash and £250,000 in shares.
Dentsu, the largest marketing services group in Japan, has written £64 million (Yen10,117m) off the value of its investments and expects this to impact on its financial results for the year to 31 March 2009 unless share prices improve significantly in the meantime. The write-off is equivalent to nearly 28% of Dentsu's post-tax profits for the year to 31 March 2008.
Dentsu said the provision did not take into account the fall in the share price of Publicis Groupe in which it has a 15% shareholding. Shares in Publicis had fallen by 26% in the nine months since the start of Dentsu's financial year last April. Today they stood at €17.12 compared with €30.5 when acquired in September 2002.
"The booking of a revaluation loss was necessitated by the marked fall of market prices of certain securities held by Dentsu and recognition that the recovery in market prices is uncertain", Dentsu said.
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So now John Napier's game plan for Aegis is becoming clearer. According to press reports investment bankers Merrill Lynch have been appointed to conduct a strategic review and we may therefore assume that a sale or break-up is high on the agenda, but by no means a certainty (see Odds still seem stacked against successful Bolloré bid for Aegis and Facing an Uncertain Future). The share price improvement certainly reinforces that assumption.
This is not particularly good news for staff. It also reflects the worrying general trend towards offering short-term gains to investors rather than building enduring profitable businesses from which shareholders can expect regular and increasing dividends over a much longer time horizon.Building for the longer term is something that British business has singularly failed to do enough of in the last few decades, when selling businesses has been the priority rather than selling goods and services. Maybe that's one of the reasons why we have such a fragile economic infrastructure today.Of course, it may be argued that there is not a long term future for two discrete specialised global businesses (media/digital and research) in a world of multi-disciplined networks, although that has yet to be proved. And if the management team can make a quick buck for itself and shareholders (typically by selling to a foreign buyer), why should it contemplate long-term commitments that would test its staying power, enterprise and ability?The snag is that current market conditions are not conducive to generous purchase prices. Quite the reverse. And if Merrill Lynch can't find a trade buyer at an acceptable price, it may be equally difficult to find a private equity fund that is prepared to take a punt on at least part of the business.
Z Group, the AIM-listed shell vehicle chaired by the former Zulu and Claydon Healey chief Jon Claydon, announced today that it intended to acquire the management consultancy business Avisen and to adopt that name in the future. Thus the company has set its sights outside the marketing industry, and just in time to avoid losing its AIM listing as I had foreshadowed on 3 December.
Avison has operations in Britain, the Netherlands and South Africa. It reported a pre-tax profit of £482,146 for the year to 31 March 2008.
Claydon has a background in the financial sector and is also a director of the digital agency Work Club.
BOB WILLOTT
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