MDC and Stagwell Group Merger Looks Uncertain Due to Protest

The merger deal between agency networks MDC and Stagwell looks uncertain due to MDC's largest shareholder, Indaba Capital Management. The long-running merger could be in jeopardy after Indaba, which owns 12% of the shares of MDC, lodged an official protest stating that it felt the terms of the merger favored Stagwell. The letter of protest Writing to the Special Committee formed to manage negotiations around the merger, Derek Schrier, managing partner of Indaba, said that the investment firm had spent months explaining MDC and Stagwell chief Mark Penn and the committe why it doesn't believe the deal would give “fair consideration” to shareholders. The letter claimed that the committee was also trying to “push through” what it described as a “conflict-ridden” and “poorly structured” merger. “We believe that the committee should be laser-focused on eliminating even the appearance of a conflict of interest in light of these circumstances,” he added, referencing the need to balance the deal more towards MDC’s shareholders. It also claimed that Penn, who is both the chief executive of MDC and managing partner of Stagwell, had “all the incentives to root for Stagwell” and that he could “make a fortune” from the merger. The letter outlined various financial issues, such as the increase in value of the companies since the committee ran its “Fairness opinion” in 2020, claiming that the results of that were now “outdated.” While the letter did take time to praise the work of the management in navigating the issues of the pandemic, it explained that the increase in value as a result of that performance by MDC has led to the protest. “Given that MDC creative agencies are continuing to win attractive mandates, such as a recent marquee contract with United Airlines, it is even more crucial for the special committee to reassess MDC’s value," the letter continued. "We firmly believe that Stagwell, which publicly touts billionaire Steve Ballmer as its core investor, can afford to adequately compensate its fellow shareholders.”The letter concluded that Indaba could support the deal should it see a move in the value of ownership from 26% to between 37% and 40% for its shareholders. The Committee's response to the protest A spokesperson for the Special Committee said in a statement that the network was “disappointed” by the open announcement by Indaba and that it felt the analysis to be “inaccurate” and “irresponsible,” highlighting that MDC’s stock has more than tripled in value since June 26 of last year, which it put down to the proposed merger. “We have no doubt that a significant portion of this appreciation in value and trading is due to enthusiasm for the Combination, and the view of most shareholders that the Combination will create growth and cash flow that will generate value for MDC shareholders going forward,” they claimed. The statement added that the special committee has “worked tirelessly” to negotiate on behalf of MDC shareholders to receive “fair value” for their shares. “We firmly believe that MDC shareholders should, and largely do, welcome and support the Combination, which offers MDC the chance to partner with leading digital and technology-focused marketing businesses to create profitable growth opportunities and a better company,” the Commitee spokesperson said. Stagwell was also described as being “at the forefront of technology, digital marketing ad strategy communications”—elements that would benefit MDC, which is aiming for organic growth through its roster of creative and traditional advertising agencies. Encouraging other shareholders to vote for the merger, the statement concluded: “It is unfortunate that, after several conversations with both representatives of the Special Committee and MDC management, Indaba claims it does not recognize the strategic merits of this transaction or the value creation it has already provided to MDC shareholders. Indaba’s resistance to a transaction that has been embraced by the market and created a significant uplift in MDC’s share price puts the Combination at risk, which is regrettable for all MDC shareholders.” During the recent Q1 financial results update for MDC, independent director Irwin Simon, who is leading the Special Committee, called for patience to get the deal done. “We look forward to successfully completing this transaction in the upcoming months," said Simon. "I know it’s taken a little time to get there, but patience is often rewarded, and we are confident that this will be the case here." Adweek has approached Stagwell for a comment, but had not received a response at the time of writing. MDC Partners and Stagwell Group Agree to Merge

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MDC Partners and Stagwell Group Merger Hits Snag With Shareholder Protest

MDC's biggest shareholder Indaba Capital lodges resistance

The letter of protest

Stephen Lepitak

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The letter of protest

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Stephen Lepitak