A media windfall for Harold Mitchell

Harold Mitchell's decision to choose Aegis shares over a $100 million cash payout on the takeover of Mitchell Communications has doubled his reward, according to Dentsu's takeover valuation for Aegis.

When Harold Mitchell decided two years ago to sell the media buying business he had spent 34 years building he did something quite brave and, it transpires, very clever.

Mitchell, whose family controlled 40 per cent of Mitchell Communications, chose not to accept the $100 million or so of cash on offer from UK giant Aegis Group under its $363 million offer but instead exchanged his own 20 per cent shareholding and 10 per cent held in his foundation for Aegis shares.

That gave him more than four per cent of Aegis – he instantly became one of that group’s largest shareholders – and he was appointed chairman of the combined Aegis Media Pacific business, with a seat on the parent company’s board.

It was apparent at the time he viewed the deal as a merger rather than takeover, that he had faith in the Aegis management – he and Aegis’ Jerry Buhlmann had a shared view of how their business should grow – and was very optimistic about the enlarged group’s future.

He was right. Japan’s advertising and media buying and planning giant, Dentsu, has made a £3.2 billion offer for Aegis which has been recommended by the Aegis board.

Conveniently, that translates to about $A4.8 billion, or almost exactly twice Aegis’ market capitalisation at the time of the Mitchell Communications deal, and a massive premium of almost 50 per cent over Aegis’ London price ahead of the offer.

Mitchell’s share of the proceeds, therefore, will be roughly double – just over $200 million – what he would have received had he taken the safe option and opted for cash in 2010.

Dentsu is a more than a century old group whose business is dominated by its Japanese operations, where it dominates.

It will (if the offer succeeds) instantly become an international advertising and media buying giant. It would be market leader in the Asia Pacific region, a top-tier player in Europe and have a strong presence in the US, a market Dentsu has found difficult to enter.

In effect, the acquisition would turn Dentsu into a truly global business with a dominant presence in the difficult to enter high-growth markets in Asia. It would have been interesting to see whether Mitchell would have doubled up if there was a chance to take scrip again rather than cash.

Apparently Mitchell will remain chairman of the Australian and New Zealand businesses, so he will retain a continuing relationship with the businesses that he built over decades. The outcome of his 2010 bet on Aegis’ future can only embellish his reputation for being one of the more astute players in his sector.

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