Advertising powerhouse Dentsu Mitchell has dumped listed company AdCorp from an alliance on a major government media-buying contract worth up to $150 million annually.
The two agencies jointly won the four-year contract in 2014 and Denstu Mitchell has been sub-contracting AdCorp to book non-campaign federal government advertising, such as recruitment advertising, public notices and tender notices.
The contract for information campaign and non-campaign work is worth up to $150 million annually. When AdCorp last held the contract for non-campaign ad booking on its own, it was worth about $40 million annually.
BusinessDay understands AdCorp is considering legal action over the abrupt move.
In a statement to the market, AdCorp said Dentsu Mitchell would "consolidate the management of the Australian government's Master Media Agency contract" and would no longer use AdCorp to place non-campaign ads.
"After several years providing services to the Australian government and its many clients, we are disappointed this relationship will no longer continue," AdCorp chief executive David Morrison said in the statement released on Friday.
AdCorp would provide the market with another update this week, Mr Morrison told BusinessDay, as it was too early to know what impact Dentsu Mitchell's decision will have. Up to 15 people were working on that government contract, but their future is unknown, he added.
Acting national manager of Dentsu Mitchell, Penny Davy-Whyte, said she hoped the "transition-out plan" from the alliance would be finalised this week with "minimal impact". The non-campaign media buying would now be done by a team in Melbourne.
Ms Davy-Whyte added Dentsu Mitchell alone held the contract and sub-contracted work to AdCorp.
The decision leaves AdCorp with a big revenue hole. On Friday shares traded hands, but did not drop below the opening price of 1.7 cents. Once worth $1.80 a share more than a decade ago, AdCorp has been hit by cuts to government hiring – which reduces recruitment advertising – and declines in advertising spends.
Last year it raised $3.76 million through a renouncable rights issue and bought a $1 million stake in video-production company Shootsta.
Founder and chairman Ian Rodwell remains the company's largest shareholder with 74.3 per cent of shares.
Two state government contracts were recently renewed, but the federal government contract has been a reliable source of income.
However, the Department of Finance decided to consolidate campaign and non-campaign advertising contracts in 2014, and awarded it to Mitchell and Partners (since re-branded Dentsu Mitchell) in alliance with AdCorp.
