Adland's Fox Takes An Each-way Media Punt

Sydney Morning Herald

Wednesday December 20, 2006

ELIZABETH KNIGHT

FOR 20 years or more Harold Mitchell has been the most powerful bloke in the advertising industry.

While virtually unknown outside media circles, he is the man who needed to place only one phone call to get to Rupert Murdoch, had the ear of Kerry Packer and his son, James, and counted Kerry Stokes as an ally.

Unlike those at advertising agencies he doesn't create ads - he just acts as an intermediary between agencies and media outlets in buying advertising space. In this pivotal position he has managed to not only survive in a cutthroat industry but make plenty of money.

Yesterday he capped off his successful career by announcing the sale of his media buying business for $100 million to the internet advertising business in which he holds a 44 per cent stake.

The deal, which effectively merges the traditional media buying business with the "new media" buying business, is recognition of the convergence of old and new media. There were, of course, existing relationships between the existing Mitchell & Partners and the emerging listed emitch Ltd, and there was no pressing business reason for the tie-up, but the consolidation had a few advantages.

In the first instance it allows Mitchell to cash in on the business he has built over the past 30 years. Its also allows his family to become involved in running this new and expanded media and communications group.

While Mitchell & Partners is now almost 25 times the size of emitch (measured by billings), the growth rates are vastly different. The 100 per cent profit growth rate experienced by emitch, while off a very small base, is still heady. Industry internet advertising is set to hit the $1 billion mark this year.

Mitchell has been able to stay ahead of the growth curve in his private company by getting into bolt-on businesses such as outdoor advertising and corporate social responsibility consulting, but the fact remains that this business's engine room of buying media space on radio and television and in print is growing at much the same fairly slow rate as the traditional media itself.

The big media players such as PBL, Seven, News and Fairfax have embraced the new media as the area with vertiginous earnings growth and the area to which advertising has been migrating from traditional forms.

At 64, Mitchell has taken an each-way bet. He is taking some of the fruits of 30 years of business building but will hold 40 per cent in the new listed emitch.

For its part, emitch will pay Mitchell via shares and cash. It will undertake a rights issue and a placement to raise money to pay out the Mitchell family. It's also going to take on a bit of debt - the amount has not yet been determined. All these details are yet to be sorted out by its adviser, Goldman Sachs JB Were.

The idea is that this new, enlarged company will expand its reach into emerging Asian markets which have a rapidly growing middle class and a brand awareness ripe for advertising.

For investors in emitch the real question is whether this business can continue to prosper without Harold Mitchell. He has signed a three-year contract but will probably pull up stumps after this and spend more time with his grandchildren.

He reckons the next generation will happily be able to deal with the likes of Ryan Stokes, James Packer and David Kirk, being able to speak their language. However, his eventual retirement does present some risk for emitch.

But if equity markets hold up over the next couple of months the deal should get away without too much difficulty.

© 2006 Sydney Morning Herald

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