SAN FRANCISCO, June 07, 2022 (GLOBE NEWSWIRE) -- Earlier today, Anand Vasagiri and Beini Zhou, members of the Artisan International Value investment team, delivered the following letter to Gareth Davis, Non-Executive Chairman of M&C Saatchi PLC.
7 June 2022
Gareth Davis
Non-Executive Chairman
M&C Saatchi plc
36 Golden Square
London W1F 9EE
United Kingdom
Dear Chairman Davis:
We are members of the Artisan International Value investment team, which collectively manages approximately USD 31 billion in discretionary investment client assets. Client accounts managed within our International Explorer investment strategy currently own roughly 1.1% of the outstanding shares of M&C Saatchi plc (M&C). We are writing today to express our concerns about the latest bid for M&C.
We welcome the board’s continued efforts to maximize shareholder outcomes. However, as constructive shareholders intent on supporting our portfolio companies, we are concerned about the offer to acquire the company from Next Fifteen Communications Group plc (NFC), which has been endorsed by the board. Put simply, we feel the cash and share offer is too low. Based on NFC’s current share price (roughly 1100 pence per share) and the proposed share swap ratio (40 pence cash and 0.1637 shares of NFC per share of M&C), NFC’s offer values M&C at a disappointingly modest 220 pence per share.
As long-term investors, we have closely followed M&C’s progress for almost a decade. We think very highly of the company’s media and advertising franchise. Despite its relatively smaller size, M&C has competed successfully against larger competitors. The quality of M&C’s campaigns has been impressive and is a testament to company talent. Even while the company navigated accounting issues, the franchise quality, new management team and board gave us comfort and confidence. As a result, in December 2020 we became M&C shareholders. Recent outcomes achieved by the company have further confirmed our belief in the quality and value of this franchise.
With approximately 50% of M&C’s revenue derived from a fast-growing, high-margin digital business, in our view a valuation reflecting a double-digit EBITDA multiple is reasonable. Based on that multiple, we think M&C is worth more than 350 pence per share.
We view the proposed transaction with NFC as a material transfer of value from M&C’s current shareholders to the current shareholders of NFC. In our estimation, even the original acquisition price of 247.2 pence per M&C share at 10X current and 7.6X 2023 forecasted Profit Before Tax (as referenced in NFC’s acquisition announcement dated 20 May 2022) is a depressed valuation, especially as the business is expected to grow at a solid double-digit pace. Given the approximate 15% drop in NFC’s share price since the announcement, the NFC offer is now even less appropriate, and with no anti-dilution component to the offer, M&C shareholders remain at risk of continued deterioration in their eventual realized value. Moreover, these low valuations do not factor in the substantial synergies NFC will gain post-transaction. Consequently, we feel the sale of such a valuable franchise at a depressed multiple and valuation is an unacceptable outcome for M&C shareholders.
In light of the foregoing, we recommend that the board reconsider its endorsement of the NFC offer. We ask the board to instead reject NFC’s current offer and seek an improved bid, one that more fairly compensates M&C shareholders. Finally, we suggest that any offer in which shares of an acquiring company are to be exchanged for M&C shares should include appropriate anti-dilution protections.
Given the complicated scenario the company is facing and the potential for real value destruction for current M&C shareholders, we felt compelled to share our perspective. Because we feel very strongly about this matter and believe other M&C shareholders may hold views similar to ours, we have made this letter available to the public. We look forward to continuing our engagement with you and the rest of the board of directors.
Sincerely,
Anand Vasagiri
Co-Portfolio Manager
Beini Zhou
Co-Portfolio Manager
Artisan Contacts:
Anand Vasagiri
415.283.2459
anand.vasagiri@artisanpartners.com
Beini Zhou
415.283.1069
beini.zhou@artisanpartners.com
