TOKYO -- Japan's No. 3 advertising agency Asatsu-DK said Monday it aims to break free from its partnership with U.K. ad giant WPP Group via a tender offer from U.S. private equity firm Bain Capital, freeing itself to adapt to the industry's rapid digitization.
Tokyo-based ADK hadn't reached an agreement with U.K. partner WPP Group before the announcement. It proposed dissolving the partnership Monday and asked the British powerhouse to sell the roughly 25% of ADK shares it held.
Bain's offer, described by ADK late Monday, is 3,660 yen ($32.48) per ADK share, representing a roughly 15% premium over Monday's closing price. ADK could be delisted as soon as November, when the offer is due to expire. Bain intends to recoup its investment by relisting the company three years down the road.
ADK also said it would not pay dividends for the fiscal year through December if the tender offer is completed.
Yearning to breathe free
The Japanese ad agency, over six decades old, faced "considerations of whether the next phase of growth would be attainable as a partner to WPP," said ADK President Shinichi Ueno.
The two partnered in 1998, with ADK aiming to follow compatriots Dentsu and Hakuhodo as the third pole of Japan's ad market as well as to expand globally. But it ran into "differences in management style and values" with WPP, said Ueno. The British company prioritizes operational efficiency, whereas ADK focuses on offering clients meticulous service.
ADK has sought an agreement to end the tie-up since 2014, but WPP has clung on, not wanting to lose its foothold in Japan. So ADK welcomed Bain's offer of privatization. How WPP will respond is unclear, but its contract with the Japanese agency allows for the partnership to be ended 12 months after either side proposes it, so it will have to act decisively.
Bain's tender offer requires 50.1% or more of ADK shares, so it could succeed without WPP. But overseas interests control a relatively high stake of around 60% in the Japanese agency. How other shareholders will respond remains unclear.
Need to digitize
ADK has sought to dissolve the partnership to have more leeway to respond to the wave of digitization spreading through the ad market.
Digital formats are expected to command a higher proportion of worldwide ad spending than television in 2018, becoming the biggest global medium. WPP stands shoulder to shoulder with international ad giants like U.S.-based Omnicom Group and France's Publicis Groupe, yet the online advertising business environment is fierce, as tech companies with their own media platforms -- like Google and Facebook -- build presence.
Even in Japan, digital specialists such as CyberAgent are growing, eroding the market shares of conventional ad companies. ADK ranks third among the traditionalists, with sales on a scale less than one-tenth those of No. 1 Dentsu. Its earnings are healthy at present, but it feels an urgent need to avoid getting swallowed up in the digitization wave.
Under these circumstances, it judged it did not have room for a partnership that, as a press release put it, "has not materially contributed to the profits of the business" for most of its nearly two decades.
Ueno wants to position ADK's delisting as a "reestablishment," he said. The market's transformation is gaining speed, and the company does not have much time to make a bold move.