WPP AUNZ Limited [ASX: WPP] (WPP AUNZ) announces it has entered into an agreement to sell 100% of its interests in the Kantar businesses in Australia and New Zealand (Kantar).
- WPP AUNZ’s global brand service fee payable to WPP plc will reduce to 2.31% of global brand net sales p.a. – a 2018 pro-forma EBITDA benefit of $5.2 million
- Proceeds to WPP AUNZ on completion, after transaction costs, and provision for restructure liabilities to the value of $8.4million, are expected to be c.$150 million, payable in cash
- Transaction values Kantar at $168 million, equivalent to a multiple of 8.2x Kantar’s2019 budgeted EBITDA
- Proposed sale of Kantar simplifies WPP AUNZ and is an attractive strategic and financial outcome for the company and its shareholder
- Transaction creates greater balance sheet flexibility to pursue growth and capacity to return funds to shareholders. Proceeds, if initially used to repay debt, would imply a leverage ratio of c.1.1x on a proforma basis as at 31 December 2018 vs 1.9x as reported
- Completion of the transaction is expected to be in early calendar year 2020 and is subject to approval by non-WPP plc associated shareholders of WPP AUNZ and completion of the WPP plc global deal
Robert Mactier, Chairman of WPP AUNZ, said: "Subsequent to the announcement by WPP plc that it has entered into an agreement to sell a 60% stake in the global Kantar business, a committee of independent WPP AUNZ board directors has determined that to participate in the global transaction is an attractive strategic and financial outcome for the company and our shareholders.”
“As a result, WPP AUNZ has now agreed to sell 100% of its interests in the Kantar businesses in Australia and New Zealand as part of the global transaction.”
“The independent directors of WPP AUNZ believe the sale will further simplify and reposition WPP AUNZ for growth. Importantly, it creates balance sheet flexibility by reducing debt to below target leverage and provides WPP AUNZ with capacity to return funds to shareholders through dividends or capital management.”
“In addition, it provides increased capacity to take advantage of opportunities in line with the strategic plan to be developed by incoming CEO Jens Monsees, who commences with WPP AUNZ on 1 October 2019,” Mr Mactier said.
John Steedman, Interim CEO of WPP AUNZ, said: “The sale proceeds will enable greater investment in the existing portfolio of companies to accelerate their growth potential and invest in new offerings and technologies that better serve customer needs. We expect to retain a close relationship with Kantar and work together, as we do now, to create better integrated solutions for our clients, particularly as our major shareholder, WPP plc, will continue to own 40% of the global Kantar business.”
Principal Terms of the Proposed Transaction
The transaction values the Kantar business at $168 million, equivalent to an EV/ EBITDA multiple of 8.2x Kantar’s 2019 budgeted EBITDA. This multiple is based on the multiple achieved by WPP plc for the sale of 60% of its global Kantar stake to Bain Capital.
Proceeds to WPP AUNZ after completion adjustments including transaction costs, and a share of restructure liabilities (to the value of $8.4million) are expected to be c.$150 million. The consideration is payable in cash. The Kantar transaction will lead to an estimated one off, non-cash accounting loss on sale of c.$50million. This reflects the difference between the carrying value of the investment and net sale proceeds.
In addition to the cash consideration received, WPP AUNZ will benefit from a permanent reduction in the annual service fee payable to WPP plc from the current rate of 3.28% of global brand net sales to 2.31%. The EBITDA benefit of this saving would have been $5.2m on a pro forma basis in 2018.
Use of Proceeds
The Board will review the optimal use of proceeds ahead of the expected receipt in early 2020, taking into consideration prevailing gearing levels, potential expansion, capital needs and cashflow outlook.
On completion, leverage is expected to be below WPP AUNZ’s targeted gearing ratio of 1.5x- 2.0x net debt / EBITDA. This will provide the Board with the flexibility to return funds to shareholders. The form of this return will be communicated to shareholders in due course.
Given the 2019 budgeted heavier earnings weighting towards the second half of the year, the leverage ratio as at 30 June 2019 is expected to be above WPP AUNZ’s target leverage ratio. This ratio is expected to have returned to within target levels by 31 December 2019 in the ordinary course.
Assuming all proceeds were used to repay debt and no capital management initiatives were undertaken, the impact of the proposed transaction would have represented a c.9.2% reduction on 2018 pro forma earnings per share.
Indicative Timetable and Next Steps
Shareholders do not need to take any action at the present time. An independent expert has been appointed to provide an opinion as to whether the transaction is fair and reasonable for the non-WPP plc shareholders of WPP AUNZ. A Notice of Meeting containing informationrelated to the proposed transaction, the independent expert’s report and details of theExtraordinary General Meeting (EGM), is expected to be sent to WPP AUNZ shareholders in October 2019.
Completion of the transaction is subject to approval by non-WPP plc associated shareholders and is conditional on the completion of the WPP plc global Kantar transaction.
If approved by WPP AUNZ shareholders at an EGM to be held in November 2019, and conditions of the transaction are satisfied, the transaction is expected to be completed with proceeds received in Q1 of calendar year 2020. These dates are indicative and subject to change.
Kantar includes the following major companies, which comprise WPP AUNZ's Data & Insights cluster:
The Online Research Unit