Benzinga | Jul 14, 2021 08:53AM EDT

MDC Partners Special Committee Responds To Indaba Capital's 'Highly Misleading and Factually Inaccurate Press Release' Concerning MDC's Merger With Stagwell Media

The Special Committee of MDC Partners Inc. ("MDC" or the "Company") responded today to highly misleading, inaccurate and false statements made by Indaba Capital ("Indaba") in a press release dated July 13, 2021, concerning the business combination (the "Transaction") between MDC and Stagwell Media LP ("Stagwell").

"Indaba has grossly misrepresented the facts contained in the MDC proxy statement, seemingly to further Indaba's extremely risky gambit of threatening to scuttle this highly attractive business combination as an attempt to extract more value," said Irwin Simon, Chairman of the Special Committee of the MDC Board of Directors. "In reality, Indaba is simply wrong on most of the facts and its irresponsible and ungrounded assertions are putting this value-creating deal at risk and placing MDC shareholders and employees at both Stagwell and MDC in harm's way."

Indaba's press release falsely asserts, for example, that the Stagwell parties and executives are receiving more than 180 million shares in the Transaction because of an "adjustment of 12 million shares ... [as] compensation expense for 'brand employees of Stagwell' ... [and] another approximately seven million shares to be issued to Stagwell managers." In fact, as the pro forma financial statements in the prospectus makes plain, these 19 million shares are being granted by Stagwell from the 180 million shares that Stagwell will receive in the transaction and are not, in any way, in addition to the 180 million shares. And so, while Indaba breathlessly proclaims that Stagwell is receiving "almost $100 million" more than previously disclosed, Indaba is simply wrong, and its bold, but false, assertions threaten the completion of the Transaction on entirely specious grounds.

So too with the balance of Indaba's assertions and the accompanying feigned shock. For example:

* Indaba claims that "Stagwell on the other hand did not increase its 2021 EBITDA guidance." This is false. Both the MDC proxy materials and a separate press release yesterday from Stagwell make plain that Stagwell has increased its 2021 EBITDA expectations. Stagwell's press release correctly states that "Stagwell has provided updated financial guidance to MDC and the Special Committee of its Board of Directors reflecting improved performance for the Stagwell business through the end of 2021. ... The quarter's significant out-performance and exit momentum are the drivers for the improved guidance that [Stagwell has] provided to MDC, which is included in the supplement to the proxy statement/prospectus filed today by MDC."

* The Stagwell special dividend is not new, has been fully disclosed since the announcement of the transaction in December 2020 and was accounted for in the Special Committee's assessment of relative contributions and value. MDC has always analyzed the transaction with full knowledge of the amount of net debt that Stagwell would contribute to the combined company. The transaction will, in fact, materially de-lever MDC, excluding deferred acquisition costs and minority investments, and all of MDC's disclosures regarding pro forma leverage have been fully accurate. If Stagwell did not distribute cash to its owners prior to the Transaction, Stagwell's contributions to the combined business would be even greater and it would seek a larger equity stake in the combined company.

* Indaba wrongly asserts that the non-controlling interest is a leveraging event. This liability did not appear on Stagwell's March 31 balance sheet because Stagwell did not have this arrangement on March 31. Importantly, the cash flows associated with this redeemable non-controlling interest were not included in the DCF valuation of Stagwell by the Special Committee. Moreover, this new contractual arrangement is one the Special Committee believes adds significant value to the combined business because it will ultimately result in the outright ownership by New MDC of one of Stagwell's most attractive businesses. Because this arrangement is expected to be in place prior to the close of the Transaction, it is now included on the [pro forma] balance sheet.

* Indaba continues to falsely assert that "a majority of the identified directors for the newly combined entity appear to have direct personal or professional overlap with Mr. Penn." That is simply untrue. Seven of the nine board members will be independent -- independent not only of MDC but, more importantly of Stagwell and its affiliates

"The Special Committee and I recognize that Indaba would like a greater stake in the combined business," continued Mr. Simon. "Shareholders should rest assured that the Special Committee fought hard to get as much from Stagwell as we could. But, we have a counter-party and there is a limit to what Stagwell is willing to do. Based on MDC's current market price and the amended deal terms, Stagwell is now contributing its business at an implied valuation that is essentially in-line with MDC's. We are at that limit."

Mr. Simon concluded, "The July 26 vote is whether to accept this deal -- one the Special Committee believes is very much in the interest of shareholders -- or return to a standalone MDC which will remain highly levered. There is no other transaction with Stagwell or anyone else. Indaba's false allegations and misrepresentations cannot change the reality that this transaction is terrific for MDC shareholders and represents their best chance to have a significant stake in a scaled company with a stronger balance sheet that operates in some of the fastest growing segments of the digital marketing and advertising sector."

The Special Committee and MDC Board urge MDC shareholders to vote "FOR" the Transaction.

The Special Meeting of Shareholders to vote on the Transaction (the "Special Meeting") will be held on Monday, July 26, 2021 at 11 AM ET, and can be accessed virtually at https://web.lumiagm.com/401933402. The Company will extend the scheduled proxy cut-off time for the Special Meeting and accept proxies and voting instructions, including electronic voting, until two business days prior to the time of the Special Meeting.