Shareholders in MDC Partners Inc. and Stagwell Media LP on Monday agreed to merge the two advertising and marketing companies after resolving a dispute that had threatened to derail the deal.
Following negotiations, MDC shareholders will own a bigger chunk of the combined business than initially proposed.
The combined company will be called Stagwell Inc. and will retire the MDC Partners name, said Mark Penn, who leads both MDC and Stagwell. The merger is expected to close in early August.
“Everybody wanted to make sure it was a good deal moving forward and that’s where we ended up,” Mr. Penn said.
The holding companies announced their plans to merge in December 2020. MDC houses creative ad agencies such as 72andSunny and Anomaly, as well as media agency Assembly. Stagwell’s portfolio includes public-relations agency SKDK, research firm the Harris Poll and digital shop Code & Theory.
The owners of privately held Stagwell Media will own 69% of the combined company.
Shareholders in publicly listed MDC will own 31% of the joint company, an increase from both the initial proposal of 18.5% and a later offer of 26%. The revised deal also included new governance terms, including a pledge to ensure that seven of nine board members would be independent directors.
The joint entity is expected to generate about $2 billion in 2021 revenue and more than $350 million in earnings before interest, taxes, depreciation and amortization, Mr. Penn said.
Indaba Capital Management LP, one of MDC’s largest shareholders, in May said in a letter that it had planned to vote against the proposed merger, which it called “conflict-ridden and poorly structured.” Indaba owns about 12% of MDC’s stock.
At the time, MDC shareholders were to get a 26% stake in the combined company. In the letter, sent to a special committee created to oversee the deal, Indaba said MDC shareholders should own 37.5% to 40% of the new entity.
Stagwell, which is backed by ex- Microsoft CEO Steve Ballmer, took a $100 million minority stake in MDC in 2019, as part of a deal that made Mr. Penn MDC’s CEO. Mr. Penn founded Stagwell in 2015.
In leaving behind the MDC name, Stagwell will put to bed a holding company brand that has experienced a number of challenges in past years, including a board shake-up instigated by activist investor FrontFour Capital Group LLC and a Securities and Exchange Commission investigation into the company’s accounting practices and the expenses of its then-CEO Miles Nadal. The company agreed to pay a $1.5 million penalty to the SEC to resolve the probe.
“We wanted it to be kind of a fresh start and show that we’re moving in a significantly different direction in terms of the central operation and what the company itself is doing,” said Mr. Penn regarding the rebrand.
Stagwell is planning a new central marketing group to oversee pitches that can pull talent from various agencies. The company also plans to focus on expanding through acquisitions, Mr. Penn said.
“The business is concentrated in the U.S.,” he said. “We’ll restart the acquisition engine to complete the global network and continue to invest. Our balance sheet will let us do that and we’ll have the growth opportunities to do that as well.”
Write to Alexandra Bruell at [email protected]
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