Indaba, the major shareholder opposing the MDC-Stagwell merger, laid out its case in detail yesterday with an open letter to Mark Penn, who leads both proposed merger partners, and a follow-up presentation it purports to show how unfair current deal terms are.
Critiquing Stagwell’s proposed modifications to the merger, Indaba said Stagwell’s “couched and caveated proposal is an attempt to use spreadsheet math to supposedly offer shareholders 30% of the combined entity. Stagwell cites a $100 million increase in the value of its offer, which is a small and arbitrary number, but then provides no context. Based on the high end of the 2020 fairness opinion commissioned by MDC’s special committee, the Company is worth approximately $1.7 billion. We find Stagwell’s purported $100 million increase insignificant against that backdrop.”
The investor said Stagwell’s “constant focus on MDC’s near-term share price performance,” which has been in the low to mid-single digits, is “inappropriate in the context of a merger that will alter the long-term trajectory of both organizations.”
The stock’s current price is roughly in line with what it was in the 12 months prior to Penn’s initial investment in MDC in March 2018, Indaba notes. And it was significantly higher before that — in the mid-$20 range before the accounting scandal in 2015, when Miles Nadal was still in charge.
Indaba also called BS on Stagwell’s attempt to frame four newly proposed board members as “independent,” given that all have ties to Penn.
“Nominee Rodney Slater served in the Clinton Administration when you were an advisor to President William J. Clinton,” Indaba notes. And Paul Richardson (former CFO at WPP) was an executive and director at WPP when it acquired Penn’s firm, Penn, Schoen and Berland Associates.
“Brandt Vaughan is a former Microsoft executive and current Chief Investment Officer of the Ballmer Group, which was co-founded by Steve Ballmer (Stagwell’s core investor).”
The fourth director put forth by Stagwell, Charlene Barshefsky, “has served as an MDC director alongside you since 2019, when Stagwell appointed her to represent it on MDC’s board of directors. Stagwell seems to be trying to stack the board of directors with your allies and former colleagues. As a potential minority shareholder in the newly combined entity, we find this lack of true independence alarming."
“Rather than continuing to issue press releases ad nauseum and trying to spin shareholders, we feel Stagwell should simply come to the table with a credible offer,” Indaba concludes. “We – and presumably other shareholders — are through with the hyperbolic claims and bombast. Stagwell’s contention that “10,000 jobs and careers have hung in the balance for almost a year” strikes us as absurd. MDC is stable and its agencies are recovering from the pandemic, as evidenced by the recent United Airlines win. We do agree, however, with your statement that it is “deal or no deal time.” We remain ready and willing to engage with you to determine what it will take to earn Indaba’s vote.”
It’s an understatement to say both sides are pretty far apart on what constitutes a fair deal.
But there’s still plenty of time — almost two weeks before the scheduled vote on the merger on June 22. That’s a lifetime in the world of deal making.