- MDC Partners’ proposed merger with Stagwell Group faces growing opposition from MDC’s major investors.
- The planned deal would create the eighth-largest advertising holding company.
- But investors want more participation and say the deal is at risk of going through.
- See more stories on the Insider business page.
MDC Partners’ proposed merger with Stagwell Group faces growing opposition from MDC investors who say the deal would be unfair to them.
Indaba Capital Management, one of MDC’s major shareholders, filed a letter on May 26 stating that the proposal to give MDC shareholders 26% of the combined company is too weak and that it intends to vote against. the agreement, The Wall Street Journal reported.
Insider spoke to two other investors, including one of the top 10 shareholders, who said they also believe MDC shareholders should own more and believe the proposed merger carries significant risks.
The two investors requested anonymity because they were not authorized to speak publicly on the next shareholder vote on the proposed merger, scheduled for June 22.
The pair said they believed the parties could agree on terms more favorable to MDC investors, but that they either plan to vote against the merger or have not decided to back it.
“We really like the merger, but we don’t like the terms,” said one. “The deal as proposed is seriously compromised.”
It’s unclear how broad investor opposition is, but if the merger fails it would end Mark Penn’s goal of creating the world’s eighth-largest ad holding company and attempt to compete more directly with WPP. , Omnicom and Accenture.
MDC and Stagwell declined to comment for this story. But in response to Indaba, Penn issued a statement saying MDC and Stagwell would be better together. A MDC committee created to oversee the merger called Indaba’s concerns “baseless and misguided” and indicated that Stagwell is unwilling to negotiate further on the terms of the merger.
Former Microsoft strategist Penn launched Stagwell Group in 2015 after raising $ 250 million in funding, including from former Microsoft CEO Steve Ballmer. Stagwell, who raised more than $ 510 million in total capital, bought a minority stake in MDC for $ 100 million in early 2019 and Penn became CEO of MDC.
Stagwell first proposed to merge with MDC in June 2020 after Penn attempted to sell Stagwell. Stagwell said its digital assets would complement the more traditional activities of MDC’s advertising agencies, which have struggled in recent years. The companies agreed in December to merge.
MDC owns advertising and public relations agencies like 72andSunny, CPB, and KWT Global. Stagwell has the political strategy firm SKDK and the Harris Insights survey group.
One of the two investors said he believed Indaba might have enough backing to at least delay the deal. “If they get the agreement of three or four others, the deal is canceled.”
The second investor described a scenario where MDC could continue as an independent business if the deal fails and partner with external agencies not affiliated with either network to launch new business rather than grow through mergers and acquisitions.
“The merger is a great accelerator, but it doesn’t have to be,” the source said.
In his letter to Indaba, the MDC committee wrote that it was created in an attempt to mitigate any potential conflict of interest arising from Penn leading the two organizations and negotiating against him for more than six months. The company has reported an almost 400% increase in MDC’s share price since the merger was announced, proof that the deal will benefit MDC investors.