• by Richard Whitman , Columnist, July 14, 2021

With just 12 days to go before the scheduled vote by MDC Shareholders on the merger with Stagwell, the companies and MDC investor Indaba continue to lob grenades at each other over the proposed merger terms.

Indaba issued its latest missive after pouring through hundreds of pages of supplemental proxy information filed by MDC this week related to the merger. It said the materials underscored how unfair the merger terms were to independent MDC shareholders. In response, MDC called Indaba’s critique “highly misleading, inaccurate and false.”

Among Indaba’s findings in the supplemental materials: An adjustment of 12 million shares, or $60 million, which is recognized as a non-recurring 2020 compensation expense for “brand employees of Stagwell” that will be issued at the closing of the transaction.

“We would like to know who these ‘brand employees’ are and whether Mr. Penn is one of them. How do we know there will not be another such grant in 2021, after the prospective combination is complete, and Mr. Penn has what amounts to total control?”

The investor and largest outside MDC shareholder also noted the disclosure of a $139 special dividend to Stagwell’s current shareholders, funded with a new term loan and cash on the balance sheet taken out of Stagwell immediately before closing.

“This dividend leverages the newly combined entity incrementally rather than facilitating the deleveraging that [Stagwell founder and MDC CEO Mark] Penn has touted as a key benefit of the transaction,” Indaba asserted.

“It appears Stagwell as a whole is not receiving 180 million shares under its patently unfair offer, but even worse, 199 million shares,” Indaba stated. “Why has Mr. Penn not discussed this aspect of the transaction with MDC shareholders? These 19 million incremental shares (“FAF” shares) to be issued to Stagwell parties equals a value today of almost $100 million and almost 25% of the consideration that MDC shareholders will receive for the equity of their company!”

Indaba notes that calculations by MDC’s investment banker estimates company shares are worth between $7.21-$12.96, more than $10 at the midpoint. But “the market still prices MDC’s shares and this transaction at roughly half of that price, as the shares closed at $5.11 today.”

MDC countered that Indaba’s assertion about a previously unmentioned 19 million additional shares going to Stagwell is “simply wrong,” and that “its bold, but false, assertions threaten the completion of the Transaction on entirely specious grounds.” It also countered that the special dividend that Indaba claimed was newly disclosed has been fully disclosed since last year, when the merger was announced.

Irwin Simon, the independent MDC board director who leads the company’s special committee evaluating the merger stated: “The July 26 vote is whether to accept this deal – one the Special Committee believes is very much in the interest of shareholders – or return to a standalone MDC, which will remain highly levered.”

“There is no other transaction with Stagwell or anyone else. Indaba’s false allegations and misrepresentations cannot change the reality that this transaction is terrific for MDC shareholders and represents their best chance to have a significant stake in a scaled company with a stronger balance sheet that operates in some of the fastest-growing segments of the digital marketing and advertising sector.”

With 12 more days to go before the vote, this fight is far from over. Stay tuned.