Stagwell LLC and MDC Partners agreed to a merger following a shareholder dispute. The combined company will have a market capitalization of $24 billion, with the merged entity being known as MDC Partners LP.
After settling a disagreement that threatened to torpedo the transaction, MDC Partners Inc. and Stagwell Media LP shareholders agreed to combine the two advertising and marketing businesses on Monday.
Following the completion of the talks, MDC stockholders will control a larger portion of the merged company than was originally planned.
According to Mark Penn, who heads both MDC and Stagwell, the merged firm will be known as Stagwell Inc., and the MDC Partners brand will be retired. Early in August, the merger is anticipated to be completed.
Mr. Penn said, “Everyone wanted to make sure it was a solid deal going ahead, and that’s where we ended up.”
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In December 2020, the holding firms announced their intention to combine. MDC is home to 72andSunny, Anomaly, and Assembly, as well as media firm Assembly. Public relations company SKDK, research firm the Harris Poll, and digital store Code & Theory are among Stagwell’s clients.
The proprietors of Stagwell Media, a privately owned business, will control 69 percent of the merged company.
MDC shareholders would control 31% of the combined firm, up from 18.5 percent in the original plan and 26% in a subsequent offer. New governance conditions were added in the amended agreement, including a promise that seven of the nine board members would be independent directors.
Mr. Penn estimates that the combined company will produce approximately $2 billion in sales in 2021 and more than $350 million in profits before interest, taxes, depreciation, and amortization.
In May, one of MDC’s biggest shareholders, Indaba Capital Management LP, said in a statement that it intended to vote against the proposed merger, which it described as “conflict-ridden and poorly constructed.” MDC’s stock is owned by Indaba, which owns approximately 12% of the company.
MDC stockholders were to get a 26 percent interest in the merged firm at the time. MDC shareholders should control 37.5 percent to 40% of the new company, according to Indaba’s letter to a special committee formed to supervise the transaction.
In 2019, Stagwell, which is funded by former Microsoft CEO Steve Ballmer, acquired a $100 million minority interest in MDC as part of a transaction that named Mr. Penn the company’s CEO. Stagwell was established by Mr. Penn in 2015.
Stagwell will retire the MDC brand, which has faced a number of challenges in recent years, including a board shake-up prompted by activist investor FrontFour Capital Group LLC and a Securities and Exchange Commission investigation into the company’s accounting practices and the expenses of then-CEO Miles Nadal. To settle the investigation, the firm agreed to pay the SEC a $1.5 million penalty.
Mr. Penn explained the rebranding process, saying, “We wanted it to be a new start and indicate that we’re going in a substantially different path in terms of the core operation and what the business is doing.”
Stagwell is forming a new central marketing division to manage proposals involving several firms. Mr. Penn further said that the business intends to grow via acquisitions.
He said, “The company is centered on the United States.” “We’ll restart the acquisition engine and continue to spend to finish the worldwide network. Our financial sheet will allow us to do so, and we will have the necessary development opportunities.”
Alexandra Bruell can be reached at [email protected]
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