Japanese ad giant Dentsu is buying marketing group Aegis for 3.2 billion pounds ($5 billion), the biggest deal in its history as it seeks to expand outside its home market with the British firm's European and digital business.
Dentsu said it had agreed to pay 240 pence for each Aegis share, a 48 per cent premium to the closing price on Wednesday, sending shares in the target group up 45 per cent to 235 pence.
Analysts described the deal as a perfect strategic fit and praised the Chief Executive of Aegis, Jerry Buhlmann, who has turned the group around since taking over in 2010.
"It's a fantastic deal for Aegis. It's an extremely good multiple and it could have a positive benefit for all the other agency groups, particularly Havas," said Liberum analyst Ian Whittaker to Reuters.
Aegis has long been seen as a potential takeover target, although it had for years been linked to the French group Havas as French financier Vincent Bollore was the largest shareholder in both.
For Dentsu, the deal enables it to find new growth outside its home market, which is eroding. Though the company dominates traditional Japanese print and broadcasting sectors, overall ad industry revenue fell 2.3 per cent to 5.7 trillion yen ($72 billion) in 2011 -- the fourth annual contraction for an industry that in the past decade has shrunk by almost six per cent.
"Dentsu and Aegis will be the market leader in the Asia-Pacific region, enjoying a strong presence across Europe and the fastest growing agency network in the US," said Tadashi Ishii, President and CEO, Dentsu.
"In recent years, under the leadership of Jerry Buhlmann and his team, Aegis has been recognised as the most successful independent media and digital communications agency with strong performance momentum and talented, client-focused employees," added Ishii.
Dentsu said it had already purchased or had irrevocable undertakings in relation to around 30 per cent of Aegis' stock, including shares from Bollore. The Bollore group confirmed it had agreed to sell its 26.4 per cent stake to Dentsu for 240 pence a share.
Whittaker said the price represented a 20 times full year 2012 expected price earnings multiple, compared with the 10-11 times that other European listed names such as WPP and Publicis trade at.
UBS said the price was at the higher end of the range of other previous deals in the sector for fast-growing digital-focused agencies such as AKQA by WPP and Razorfish by Publicis.
The deal comes months after Dentsu ended a nine-year alliance with Aegis' European rival Publicis. The French company bought back a 9.1 per cent stake held by Dentsu in February, leaving the Japanese group with the firepower to strike another deal in Europe, analysts said at the time.
Aegis said in March it expected to outperform rivals and drive profits further ahead in 2012 after record numbers of new clients in the US, China and Brazil helped it to beat 2011 revenue targets.
The group sold its Synovate market research unit last year and had performed strongly since.
"We at Aegis are delighted at the prospect of being able to play a full part in helping Dentsu create a platform for global growth and continued digital innovation," said Buhlmann.
"By forming the first communications group with true global reach, the growth strategies of both businesses will be enhanced as we provide more scale, geography, capability and investment to support clients," he added.