Friday 31 January 2020 9:12 am

FCA opens probe into M&C Saatchi's £12m accounting blunder

The City watchdog has launched a probe into M&C Saatchi’s accounts after the advertising giant admitted an £11.6m accounting error in December.

The Financial Conduct Authority (FCA) has opened its own investigation into the issue, which saw M&C Saatchi shares implode.

M&C Saatchi also issued a profit warning at the same time, admitting earnings could fall up to 27 per cent below the level it hit in 2018.

Today M&C Saatchi told investors:

The Financial Conduct Authority (“FCA”) has notified M&C Saatchi plc that it has commenced an investigation following the accounting adjustments announced by the Company, most recently on 4 December 2019, and following the completion of an independent forensic review commissioned by the Board. The Company will co-operate fully with the FCA.

The FCA declined to comment.

M&C Saatchi’s share price sank almost nine per cent to 101p in early trading.

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And the advertiser’s stock crashed 40 per cent after December’s double blow.

Lord Maurice Saatchi also stepped down as executive director a week later.

CEO David Kershaw had offered to quit over the crisis, but the board rejected his suggestion.

Instead Saatchi’s fellow Tory grandee Lord Dobbs, as well as other board members Sir Micheal Peat and City bigwig Lorna Tilbian stepped down.

It is understood the exodus came about as a result of disagreements as a result of the accounting error.

Could M&C Saatchi bloodbath trigger a merger?

M&C Saatchi’s disastrous December has triggered City speculation of a takeover of the media giant. Accenture Interactive would be best placed to make a bid, it is understood.

But AJ Bell investment director Russ Mould has told City A.M. that the company’s “messy” corporate governance could impede a merger.

A scramble to replace the departing board members led to the appointment of former DS Smith chairman Gareth Davis as deputy chairman. He will take his seat on 3 February and will conduct a full review of M&C Saatchi’s governance.

Meanwhile, media sector veteran Colin Jones will join as non-executive director and chairman of M&C Saatchi’s audit committee.

Chairman Jeremy Sinclair said at the time of the announcements: “We are delighted to welcome Gareth Davis and Colin Jones to the board. Both have extensive public company experience at the highest levels. We look forward to working with them to restore the company’s health and reputation. We hope to be able to announce the additional non-executives in the near future.”