Marketing services firm ScanGroup #ticker:SCAN is set to sell two of its subsidiaries for more than Sh2.4 billion in a deal that was triggered by a related transaction involving its London-based parent company WPP Plc.
WPP recently announced it would sell a 60 percent stake in its global data research firm Kantar to Boston-based private equity firm Bain Capital for $4 billion (Sh416 billion) in cash.
According to an existing agreement between WPP and ScanGroup, the deal also commits the Nairobi Securities Exchange-listed firm to sell its stakes in the Kantar affiliates it owns in Africa.
These include scores of operating units in various African countries housed under investment holding companies Millward Brown and Research and Marketing (which ScanGroup acquired just last year).
ScanGroup invested Sh1.2 billion to acquire a 100 percent stake in Millward Brown and also incurred a similar expense in cash and stock to take an 80 percent equity in research and marketing.
“ScanGroup provides an update to the market in relation to the proposed sale of its Kantar business in Africa, which includes an 80 percent shareholding in Kantar TNS and a 100 percent shareholding in Kantar Millward Brown,” the company said in a statement.
“ScanGroup confirms that the sale (of Kantar to Bain Capital) triggers certain drag and tag rights in respect of its Kantar business in Africa under existing arrangements in place with the WPP Plc group and is in discussions with WPP Plc regarding the mechanics and process for the sale of its Kantar business in Africa.”
Drag and tag rights are legal provisions enabling a majority shareholder to force a minority investor to join in the sale of a company.
For ScanGroup, the impending disposals will further boost its cash pile which stood at Sh4.4 billion in the year ended December. It remains to be seen how the company will use the proceeds.
ScanGroup chief executive Bharat Thakrar did not respond to our queries.
WPP, meanwhile, plans to use the cash it will receive from Bain Capital to reduce debt and reward shareholders through a mix of dividends and share buy-backs.
Net proceeds to WPP will stand at $3.1 billion (Sh322 billion), out of which $1.2 billion (Sh124 billion) will go to shareholders, according to a press release put out by the conglomerate.
The upcoming transactions will also diminish Scangroup’s business and reduce its geographical diversification.
Research and Marketing, for instance, raked in a net profit of Sh180 million for ScanGroup which said the acquisition performed well, enabling it to grow sales after its turnover had declined for four consecutive years.