Media Perspective: New business fails to lift the shadows hanging over Aegis

By last weekend, City talk had moved on to events at Marks & Spencer, but it was the relative minnow Aegis that had filled the column inches towards the end of last week. Or, more precisely, the hefty remuneration package potentially pocketed by the Aegis chief executive, Doug Flynn. A majority of Aegis shareholders had failed to back its remuneration report that has Flynn on a two-year contract, a practice that tends to annoy investors (as WPP and GlaxoSmithKline, among others, have found).

Aegis said that it would listen to shareholder concerns on remuneration but it would seem on the surface that this is the only fly in its ointment at the moment.

Annoyingly for Flynn, the controversy over his lucrative pay-off deal (should he leave) overshadowed a healthy first-quarter trading statement.

Group revenues were up 11 per cent and Aegis said that both Carat and Vizeum have enjoyed a healthy new-business record, citing Europe as the region with the most marked improvement.

Yet, despite the optimism surrounding Aegis, there are shadows lurking.

First, there is the feeling Carat is not what it was in some key markets.

Notably, there have been concerns over the UK and France. Aegis has acted in the UK, replacing the chief executive, Mark Craze, with Nigel Sharrocks but the full impact of the departure of the former Aegis Media Europe chiefs Eryck Rebbouh and Bruno Kemoun has yet to be felt.

It's hard to fault the strategy so far of their replacement, Jerry Buhlmann, but what happens when "the twins" non-compete clauses expire and Carat's key accounts become fair game for the pair at WPP?

Doubters have also questioned Flynn's strategy of building a more diversified company with heavy investment in healthcare and market research through Aegis' Synovate arm. But, to date, this diversification into higher margin areas seems to be paying off, with Synovate increasing revenues by 4 per cent in the first quarter.

The major worry for Aegis should be its relative lack of scale in media buying compared with the four major holding companies. While it is set to benefit from general growth in global advertising revenues (Aegis expects 5.3 per cent growth this year), its market leadership in its European stronghold is under attack from OMD and MindShare. OMD's $1.2 billion McDonald's win dwarfs Aegis' $285 million new-business gains this year.

And word of a major network buying Aegis is intensifying with some suggesting that, on a more parochial UK level, Nigel Sharrocks' role will be very similar to that of Stuart Rose at M&S. Namely, keeping the business ticking over and helping to ensure that any merger or acquisition happens on the best possible terms before walking off with a stackful of shares. But this is more likely to take two years than two months to play out.

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