WPP, Global communications firm- is set to raise its stake in its local subsidiary WPP Scangroup to 56.25 percent by acquiring an additional 6.1 percent equity.
The all-stock transaction, valued at Sh926.6 million, will see Scangroup issue 53.2 million shares to Russel Square Holding, another entity controlled by WPP. Russel will in turn hand over to Scangroup its 70 percent stake in Mauritius’ Research and Marketing Group Investment Limited.
The transaction, expected to be completed by end of July, mirrors a 2013 deal that saw WPP take a controlling 50.1 percent stake in Scangroup by offering Sh1.8 billion in cash and surrendering its interests in nine subsidiaries to the Nairobi Securities Exchange-listed firm.
“Consequently, Russell BV and its associated persons will beneficially own an aggregate of … 56.25 percent of the issued shares in WPP Scangroup,” Rusell said in a notice. The deal comes at a time when Scangroup’s share price has fallen by two-thirds to Sh17 from highs of Sh50 in March 2015 when the last bull market ended.
The company is trading at a 28 percent discount to its net assets but at a premium ratio to earnings of 14, reflecting lower profits in recent years. Scangroup’s net earnings have been volatile, more than tripling from Sh244.4 million in 2007 to peak at Sh911.1 million in 2011 and then nearly halving to Sh460.3 million in 2016. They rose 3.8 percent to Sh479.9 million in the year ended December, largely driven by lower costs.
The entry of WPP has seen a flurry of mergers and acquisitions at Scangroup, in line with the multinational’s global strategy of pursuing growth by taking over rival marketing services firms. The global advertising giant’s founder and long-serving chief Martin Sorrell recently resigned from the company amid investigations into alleged misuse of the company’s assets, raising the prospect that a successor could adopt a different strategy for the conglomerate.