WPP calls out ADK's overseas strategy and animation business

In a fiery statement, the world’s biggest ad company claimed it has tried for many years "to find out the scope and scale of the profitability of the animation business without success", before rhetorically asking "What is it?".

ADK had claimed yesterday that WPP had failed to yield "expected synergies". ADK had also noted that the industry has "changed significantly" since the agreement began.

In response, WPP said today: "WPP wishes to make it crystal clear that ADK have rarely, if ever, responded to suggestions to generate synergies during our relationship.

"As a 24% shareowner, WPP has never been in a controlling position and ADK have consistently refused to focus or expand their Japanese operations digitally or restructure their overseas operations, which have consistently lost money, concentrating instead on unsuccessful animation and content acquisitions."

See all our coverage of the ADK-WPP fight over Bain's bid

In addition, Reuters has reported that Hong Kong-based hedge fund Oasis Management is pressuring ADK to hold a formal sales process, arguing that a transparent auction would result in a higher price than Bain's tender. The exact size of Oasis' stake in ADK is unknown, but it is less than the 5 percent that would require a regulatory filing.

WPP accused ADK last week of failing to act in shareholder interests by supporting Bain’s tender offer. It also suggested that ADK was to blame for the partnership’s shortcomings. ADK claimed to have approached multiple potential suitors before deciding Bain was the most "credible" and said Bain’s offer was "heavily scrutinised" and has already increased since negotiations began.

WPP and Silchester International Investors, ADK’s second-biggest shareholder, have said Bain’s offer undervalues ADK. ADK said that under Japanese law, it has the right to terminate its agreement with WPP and as a result that WPP is obligated to sell its stake in ADK.

ADK has said that its own stake in WPP, which is worth about ¥65 billion (US$579.5 million), has delivered a low return and exposes ADK "unnecessarily" to WPP’s performance. It said it hopes shareholders will see the sale as a chance to cash out "with a premium".

Bain Capital’s offer will expire on 15 November.

WPP's statement on ADK

WPP wishes to make it crystal clear that ADK have rarely, if ever, responded to suggestions to generate synergies during our relationship. As a 24% shareowner, WPP has never been in a controlling position and ADK have consistently refused to focus or expand their Japanese operations digitally or restructure their overseas operations, which have consistently lost money, concentrating instead on unsuccessful animation and content acquisitions.

ADK indicate they have approached others. They should clarify immediately the number of strategic and financial parties they have made meaningful approaches to, and the extent of those discussions and deliberations. WPP is aware of at least one approach that was frustrated by management. It was a serious approach but ADK’s management made it quite clear that they were not prepared to discuss the matter further. Were these approaches fully discussed at board level?

To WPP’s knowledge Bain has made promises in relation to management continuity and the price negotiated by Bain was not a very demanding one, given the intrinsic existing value. This is a view shared by at least three shareholders publicly, so far, and representing approximately 40% of the issued share capital.

ADK have known for some time that there are further conditions to any termination of the alliance with WPP and on a previous occasion when ADK sought to terminate the agreement, they were unable to do so.

The sale of WPP stock will trigger a significant capital gains tax liability and shareowners have consistently told ADK’s management that it would unwise to do so. Bain now says that the main purpose of the transaction is the value of ADK’s animation business and assets. Is Bain aware of the details surrounding the animation business? If so, all such details should be released to other potential bidders forthwith.

WPP has tried for many years to find out the scope and the scale of the profitability of the animation business without success. What is it?