Bottom Line: Aegis's promise

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The Independent Online
ANOTHER day, another refinancing from the advertising sector. The latest to pass the hat around is Aegis Group, the media buyer, which yesterday launched a pounds 161m refinancing, the second by the company in as many years.

Key features include a pounds 100m debt-for-equity swap that will pay off all its outstanding convertible paper. Another pounds 61m is being raised by an open offer at 20p a share expected to give Omnicom, the respected US advertising group that owns 25 per cent of Abbott Mead Vickers, a 9 per cent stake. The stake of Warburg Pincus, the US investment firm, will jump from about 11 to 28 per cent.

Without the new funding Aegis's future looked dicey. It is undergoing a management and operational shake-up at a time when trading conditions are tough. Under Peter Scott, who stepped down as chairman and chief executive a year ago with a pounds 2.2m pay-off, the company had built up an unsustainable level of overheads and debts. The new management is correcting that by selling off corporate jets and shrinking the dual head office to one in Paris.

But it has still to come to terms with legislation in France - one of its most important markets - that will bring margins there down to more normal levels.

Servicing the preference stock alone is costing pounds 10m a year and, while its pounds 85m bank debt will remain broadly unchanged, the gearing should fall from almost 90 to 16 per cent. About pounds 30m of earn-outs from previous deals will be repaid.

The industry shows few signs of an improvement in the short term but, as Europe's biggest independent media buyer, Aegis could generate taxable profits of about pounds 30m next year - although a pounds 14m restructuring charge will depress this year's result.

Omnicom's willingness to join the refinancing can only be a good sign. Although the shares fell 11p to 21.5p yesterday, they look promising on a two-year view.