Media Square, the AIM listed owner of agencies that include CMW, Gate, and Lloyd Northover, must be well positioned for a place in the Guinness Book of Records for the smallest board of directors for a public company.
Yesterday’s resignation of non-executive Nigel Bacon, whose association goes back to the early days of the company, leaves just three directors in post. They are chairman Roger Parry (doubling as chief executive), chief operating officer Bruce Winfield (doubling as chief financial officer) and non-executive Michael George whose former employer Electra Partners once managed a fund that had a chunky shareholding in the group. At least the reduced size of the board will keep central overheads down.
Between them the three remaining directors also have to chair an audit committee, a nomination committee and a remuneration committee, although it’s hard to envisage any of these committees having fewer than three members and thereby not engaging every director in every meeting.
Of course, as Parry pointed out yesterday, this is purely a temporary situation. His fellow McKinsey alumnus Peter Reid will be taking on the role of chief executive in January when Parry steps back to become a purely non-executive chairman. Bruce Winfield will become simply the CFO and two more suitably experienced non-executives will be found to keep Michael George company.
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This morning Aegis Group produced another trading statement that is the nearest thing to gobbledegook that a shareholder could ask for. The company summarised several paragraphs of random data with the words: “The results after nine months’ trading allow us to reconfirm the guidance given at the half year”. The guidance given at the half year was simply to expect “a full year profit outturn in line with current market expectations” (see Aegis’ resilient performance? A loss so far). So that makes things much clearer, doesn’t it?
Given such bland guidance, let’s make some guesses. First, the group will report a loss for the full year (as it did for the first half). Secondly, in arriving at that loss, restructuring costs will have cost at least £32 million. Thirdly, gross income for the year (revenues less bought in direct costs) will fail to match the modest 3.5% growth achieved in the first six months. Fourthly, recent currency movements will have eroded some of the benefits gained in the first half. And fifthly, net debt will have crept up a little by the year end when compared with last year.
Of course these guesses may all prove to be completely wrong as “market expectations” reflected in the company’s share price seem to have been climbing since its interim results were announced at the end of August. But that may just be a reflection of a general improvement in stock market sentiment rather than anything to do with Aegis.
This morning Aegis shares shed nearly 4% of their value in early trading so, whatever market expectations may have been, they appear to have cooled a little following the trading update. Indeed, by the end of the day the shares had lost nearly 7% of their opening value.
Chairman and chief executive John Napier (who also finds time to chair Royal SunAlliance Group) had this to say this morning: “Our strategy to perform resiliently in a downturn has continued to deliver and we are pleased to confirm further progress in a difficult and challenging market environment.” Interpreting that is fairly challenging too.
It was inevitable that Aegis would suffer from the adverse economic climate and, after all the restructuring activity this year, there’s every chance that 2010 will be a better one. Hopefully Aegis will have learned to communicate better by then too.
Hasgrove, the AIM listed communications and digital marketing group, intimated this morning that its pre-tax profit for 2009 will fall by about 60% from the £4.2 million achieved in 2008 to about £1.8 million.
The company blamed exceptional restructuring, recruitment and business development costs of over £1.7 million for much of the decline.
However, the fear that clients would defer projects into 2010 has also become a reality, and this has had an additional adverse impact on the current year’s profit expectations.
At the end of September Hasgrove warned that, while historically the group's second half had been stronger than the first, a number of large retainer assignments due in the fourth quarter were still to be confirmed.
Making comparisons with 2008 has been made more difficult by the publication of incorrect figures for that year in the company’s interim statement in September. Some of the items shown as relating to 2008 were actually those for 2007.
Hasgrove acquired the assets of the digital customer relationship management business Underwired from administrators last month and acquired the more profitable young digital technology business MCL Digital in September.
Cosmos Capital, the Canadian private equity backed vehicle headed by Cossette co-founder and former vice chairman François Duffar, has increased its all cash bid to match the offer for Cossette favoured by the current management.
Last week Cossette announced its support for an offer of Canadian$7.87 per share from another private equity investor Mill Road Capital – a substantial increase over an earlier $5.25 offer made by Cosmos (see Cossette board recommends alternative $132m offer).
Yesterday Cosmos called again for access to the same non-public information that has been made available to other potential bidders and intimated that it may be prepared to increase its offer further on completion of its due diligence review.
Cosmos claimed support for its bid from holders of 37.3% of Cossette’s voting share capital. The opposing management bid includes Cossette board members Claude Lessard and Pierre Delegrave who hold shares carrying about 20% of the votes between them and have stated that, when shareholdings of other executives are included, they can account for about 30% of the votes.
The deadline for acceptance of the improved Cosmos offer remains unchanged, namely 7 December. The Mill Road offer will be put to shareholders in the middle of December.
Cossette's UK operations include Miles Calcraft Briginshaw Duffy, Elvis Communications, Band and Brown, Dare Digital and Identica.
Asia Digital, the AIM listed online advertising sales agency that formerly traded as Deal Group Media, has been compelled to convene a meeting of shareholders following disclosure that its net assets had fallen to less than half its issued share capital.
Such a meeting is required by law to enable shareholders to consider “whether any, and if so what, steps should be taken to deal with the situation”. The shareholders' meeting should be called within 28 days from the earliest day on which the shortfall becomes known to a director of the company and be held within 56 days from that day.
The deficiency of net assets first became clear to the public in April this year when the parent company was shown to have share capital of £4.5 million whereas its net assets had sunk to £1.9 million.
Each of the company’s directors is liable to a fine if he or she is found to have knowingly been party to a failure to convene a meeting of shareholders within the prescribed time.
Shares in Asia Digital continued to slide further this week to 0.54p this morning and are now close to the low point reached prior to the issue of a relatively bullish report that accompanied its interim results in September.
Announcing the shareholders’ meeting today, the company’s directors expressed the opinion that the £1.2 million share placing on 30 October 2009 had “materially improved the group's financial condition and expected improvements in financial performance should continue this positive trend” (see Asia Digital raises £1.2m in extra share capital).
Baronsmead Venture Capital Trust and other clients of private equity house ISIS EP between them now hold shares accounting for nearly 17% of the capital of AIM listed Adventis Group, following the placing of new shares last week (see Adventis raises extra £825,000 share capital).
Adventis is a specialist marketing group and has strong links with the property sector. Savills (L&P) – part of the global Savills property consultancy group - holds 30% of the company’s shares and its finance director Allan Collins sits on the board. Adventis chairman Aubrey Adams and chief executive Charles Phillpot also have historic connections with Savills.
Since becoming a public company, Adventis has extended its marketing specialisms beyond property into healthcare, finance and technology.
Recently ISIS EP disclosed that it had also built up a 19% shareholding in another media related group WIN, the technological facilitator of mobile phone media and information (see ISIS shareholding in WIN reaches nearly 20%) .
Attempts by a group of agitating investors to requisition a shareholders’ meeting seem to have created both consternation and confusion at AIM-listed Media Square.
The demand for a meeting – aimed at ousting chairman Roger Parry and installing three new directors lead by Bob Morton – was made on 30 October by a group of three shareholders lead by Morton’s Hawk Investment Holdings. The approach was made public by Media Square on 2 November with a promise that its board would “duly consider its position regarding the requisition over the coming days” and write to shareholders on the subject at the “appropriate time” (see Morton seeks to oust Parry from Media Square).
Nothing more had been heard on the subject from Parry or his board until the company put out a rather odd statement this morning saying: “The company believes, based on advice it has received, that the general meeting has not as yet been properly called. The company will continue to investigate these matters and will provide further clarification in due course.”
Company law requires such a general meeting to be called by the directors within 21 days of the date when members holding at least 10% of the company’s shares have requested it.
According to Media Square’s own records, two of the three requisitioning shareholders between them owned over 10% of the shares at the time the request for a meeting was made. So unless Media Square's own calculations are wrong or there is any doubt about the ownership status of those shares, the company has until 20 November to send out a notice convening the meeting. That’s just over a week from now. The notice has not yet been given.
If the directors fail to call the meeting within the 21 days, the petitioning shareholders may then convene the meeting themselves.
So why the need for this morning’s obscure notice implying that someone thinks a meeting has already – albeit improperly – been called? Media Square’s statement simply creates confusion. Clarification is certainly required. Urgently.
Cossette, the Canadian listed marketing group under siege from a company headed by its co-founder and former vice chairman François Duffar, is recommending its shareholders to support an alternative offer from the US private equity investment firm Mill Road Capital.
The alternative offer amounts to Canadian $7.87 per share – putting a value of about $132 million on the group - and is substantially greater than the $5.25 offer made by Duffar’s company Cosmos Capital last month (see Cossette takeover battle begins in earnest).
No details are available yet about how the deal will be financed and, in particular, the proportion of the purchase price that will be funded by borrowings. This could have a significant bearing on how much pressure will be felt by the continuing management team to maximise profits and cash flow.
Both Mill Road and Cosmos intend to take Cossette private and thereby remove it from public investor attention. However, a private equity investor will also be looking for significant growth in value, with an exit strategy that could involve either a trade sale to another major player or a re-flotation on the stock market at a future date.
A meeting of shareholders will be held in the middle of December to consider and vote on the Mill Road offer. If the offer is accepted, senior managers who currently hold about 30% of Cossette's shares will continue to have a shareholding in the company. Rival bidder Cosmos has set a deadline of 7 December for acceptance of its lower offer.
While the Mill Road offer carries the unanimous support of Cossette’s current board of directors, it is still conceivable that Cosmos might improve its offer. Other potential buyers might also still enter the fray. However, the Mill Road offer equates to a multiple of nearly 15 times Cossette’s 2008 post-tax profits (before it slipped into losses this year) and may prove too rich for others to match.
On the other hand, Cossette’s 2008 profit had already fallen by nearly 50% from the previous year’s level after a big write-down of earlier acquisition costs. So if the group could rapidly restore profits to the 2007 level, the Mill Road price would represent a more modest multiple of about 8.3.
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Dentsu, the biggest listed Japanese marketing group, is to merge all it digital business resources under one umbrella company to be called Dentsu Digital Holdings (DDH) that will operate as a single digital agency. The move reflects a change in strategy that the company says will “constructively eliminate and integrate internal digital-related departments and reorganise and consolidate digital resources”.
DDH will embrace all digital-related functions and absorb the activities of the wholly owned subsidiary cyber communications.
The announcement this morning that Chime Communications will own “a majority” of the company being formed from the proposed merger of James Henderson’s Pelham Public Relations with Bell Pottinger’s corporate and financial consultancy suggests that Henderson will retain a sizeable minority stake in the ongoing business for the time being at least.
The merger has probably placed a value of between £5 million and £6 million on Pelham while Bell Pottinger Corporate & Financial has less turnover and is therefore the smaller partner. Typically such a merger might be effected by an exchange of shares accompanied by a payment by Chime for the difference between the value of the percentage of the combined business that Chime wishes to own and the value of the Bell Pottinger business it is contributing.
Chime has not disclosed the percentage of the merged business it wishes to own at the outset although clearly it will be in control. The likelihood is that Chime will not be parting with more than £3 million and possibly rather less, so Henderson will retain a material minority shareholding in the enlarged business after the deal. Henderson owned about 93% of Pelham and its president David Wynne-Morgan owned the rest.
With Henderson having been such a dominant shareholder, there is a mutual benefit to be gained by allowing him to keep a shareholding in the merged business to be called Pelham Bell Pottinger. It offers a greater inducement to remain committed to the company where he will be managing director and where client continuity will be important. However, Chime is likely to have secured an agreement with Henderson that will enable it to acquire his shares over a period of time.
Pelham made a post-tax profit of £621,000 in the 16 months to 31 December 2008 on gross income of £7 million. On an annualised basis a valuation of about £5.5 million would represent a multiple of about 12 times post-tax profit or one times annual gross income.
Dentsu, the leading Japanese listed marketing group, surprised the industry this morning by upgrading its profit forecast for the year to 31 March 2010 by 44% from ¥11.4 million (£76 million) to ¥16.4 million (£110 million).
The increased profit is expected despite a continuing decline in revenues. “The harsh environment is expected to continue”, the company said, but it expected profits to benefit from cost reduction efforts.
In the first half year to 30 September, cost reduction efforts were supplemented by a refund of tax paid in previous years. As a result profits are expected to have beaten the previous forecast by 123%.
The former McKinsey management consultant brought in two years ago to rationalise AIM listed marketing group Media Square under its executive chairman Roger Parry will take over as group chief executive next January. Parry will then become a non-executive chairman and thereby appease those shareholders currently baying for his removal who might otherwise have criticised his dual role.
Peter Reid’s appointment as chief executive is a curious one that leaves a number of questions unanswered. There is no doubt that a lot of change has taken place at Media Square since Parry assumed the chairmanship in 2007, and hopefully time will prove that the group is in a much better condition as a result.
Reid’s role in cutting costs and rationalising business units is bread and butter to a management consultant who typically moves on to pastures new thereafter. But those that eventually assume senior management roles do not always bring glory to the post.
First, they have to reap the rewards (or lack of) from their rationalisation labours. Costs may be much reduced but business building and skills development may not have received the same degree of attention they deserved.
Secondly, the skill set required to motivate and manage an ongoing business is not always a natural part of a consultant’s armoury. For example, according to Companies House 35 year old Reid has never held a board directorship in the UK before. And he doesn’t seem to have had first hand experience of managing the day-to-day operations of a commercial business over a long period of time.
Of course, stars can appear from nowhere and hopefully Reid will prove to be just the person for the job. But in a group that arguably had accumulated too many second hand and second rate businesses, shareholders might feel more reassured to know that the new boss has actually run a marketing company successfully before.
For a company that claimed at the end of September that it had a very strong balance sheet, was "cash generative at an operational level” and had “considerable unused bank facilities”, it seems slightly surprising that the AIM listed specialist marketing company Adventis Group has chosen to raise an extra £825,000 in share capital this week.
Fund-raising is never cheap and the amount of cash raised on this occasion was relatively small.
The management continues to assert that it is looking for acquisition opportunities although the extra capital is hardly enough to fund anything other than a very modest transaction. It may be pertinent that the group had net debt of £1.8 million at 30 June – a new experience for a historically cash positive group – and has some relatively modest outstanding earnout commitments to settle this year. And there may be more earnouts to settle next year too.
Even so, the level of bank borrowings is very small by comparison with the £13 million that shareholders have invested in the company. But bankers also like to see healthy profits and, while chief executive Charles Phillpot points out that the group remains profitable (it made amost £0.5 million in the half year to 30 June), the current economic climate inevitably will be having a dampening effect.
The new capital has been subscribed by a Baronsmead venture capital trust with the backing of Arbuthnot Securities. So at least two experienced financial institutions seem happy to support the company’s strategy.
Contrary to first indications, it now appears that much of the 6.9% shareholding in Media Square built up by Bob Morton’s Hawk Investment Holdings in recent weeks was acquired from Yorkshire entrepreneur Anthony Gill and not from Hansa Trust (see Name from the past builds near 7% stake in Media Square). Gill notified Media Square yesterday that he had sold 1.3 million shares – the same number as were most recently acquired by Hawk.
Gill acquired a 16% shareholding last April (see Yorkshire entrepreneur buys 16% of Media Square) and the partial sale leaves him with a residual 12% stake. The shares were sold for about 14p, giving Gill an £80,000 profit over the six month period.
A sizeable parcel of shares was also sold on 22 October by Acuity VCT, a fund managed by a private equity house that was formerly part of Electra Partners Group. The purchaser has not been identified but could also have been Hawk.
Given the above disclosures it now seems likely that Hansa Trust has retained its 1.3 million shareholding – for the time being at least.
Following the acquisition of a 6.9% shareholding in Media Square reported here this morning, Bob Morton's Jersey-based company Hawk Investment Holdings has requisitioned a meeting of Media Square shareholders with the aim of ousting the company’s executive chairman Roger Parry and installing three new directors (see Name from the past builds near 7% stake in Media Square).
Morton has a previous connection with various Media Square's subsidiaries that were formerly owned by Incepta Group when he was chairman there.
Hawk is seeking to put a resolution to shareholders for the appointment of Morton, David Wright (another former Incepta director) and accountant Keith Springall to the board.
Media Square's current board said today that it will "duly consider its position" regarding the requisition of a meeting and write to shareholders "at the appropriate time".
Earlier this year an attempt was made by the Irish financier Peter Lynch to obtain a place on the Media Square board. It remains to be seen whether his company Prime Active Capital and other large shareholders will support Morton's boardroom assault.
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