Print Published 22nd Nov 2017, 10:05

Three words that may be key to WPP’s future in Japan

While we await the outcome of Bain Capital’s takeover bid for Asatsu-DK, it is worth studying the terms on which WPP agreed to tender its 24.9% shareholding after initially putting up a lot of resistance.

The essential few words appear to be “in good faith”.  Any future cooperation will be discussed in good faith by both parties, Bain announced.   And Bain has agreed to “discuss” a potential investment by WPP as a non-controlling minority shareholder.

On the face of it, WPP has surrendered its shareholding without any firm undertakings from Bain unless there is some form of side letter that has not been disclosed or the tender offer fails to secure the 50.1% acceptance required (see WPP to sell ADK shares in return for possible stake in successor company).

Yet Bain now holds the key to WPP’s continuing presence in the Japanese market.   While Bain’s loyalty must lie with ADK as a prospective medium-term partner, the reality will almost certainly prove to be that the private equity bidder aims to maximise the market value of ADK as quickly as practicable and sell it off at a chunky profit – either to another trade buyer or to the public by means of a reintroduction to the stock market.  That assumes Bain is not planning to become a far more active long term player in the marketing sector itself.

A lot will depend on whether Bain believes genuine commercial value can be added to ADK by cosying up to WPP, rather than by the “new ADK” bidding for other marketing businesses on the global stage (see Asatsu-DK takes tighter control of its global ambitions).  And it may offer Bain something of an exit insurance policy if WPP becomes a large shareholder in the “new ADK” that might be eager to increase its shareholding in the future in appropriate circumstances.  On the other hand, Japan is notoriously protectionist in its attitude to foreign investors.

A lot will also depend on whether Bain can heal the breach in mutual confidence that has been exposed by WPP and ADK during the recent shareholding controversy, not helped by what seemed like an unfriendly stance initially taken by Bain.  In the present climate it is hard to envisage WPP and ADK having open and meaningful talks about further collaboration between them.

For WPP the choice is not particularly endearing: either (i) collect roughly £250 million in cash for its shares and seek alternative ways to develop its business in Japan or (ii) find an effective way to make the collaboration really work.   Either way “good faith” is critical.