WPP jumps over 5% on fresh takeover interest from Havas and Private Equity

Investing.com -- WPP (LON:WPP) shares jumped more than 5% on Monday after fresh takeover speculation reignited investor interest in the embattled advertising group, with reports indicating that French rival Havas, along with Apollo Global Management and KKR, have explored preliminary approaches. 

The move lifted sentiment around the London-listed conglomerate, which has suffered a collapse of more than 60% in its share price this year, leaving the company valued at roughly £3 billion.

According to The Times, the early-stage discussions span a wide spectrum of possibilities, from a full takeover to a substantial shareholding or selective acquisitions of individual business units. 

However, no valuation terms have emerged and, critically, Apollo “denied interest,” as BofA Securities notes. 

In its assessment, BofA stresses that both media reports “stress discussions are preliminary” and that the brokerage maintains its cautious stance, “We maintain our Underperform stance given WPP’s deep, prolonged turnaround and the need for a materially stronger balance sheet.”

Under new CEO Cindy Rose, who took over on 1 September, WPP is pursuing a sweeping restructuring focused on data-driven and AI-led operations. 

That process intensified after the group issued a profit warning on the back of a 5.9% decline in like-for-like net revenue, developments that have drawn attention from both strategic and financial buyers who see potential value at a depressed valuation.

Among the reported suitors, Havas stands out as the only industry peer. The French group, the sixth-largest agency holding company, has been expanding its media ambitions and recently signalled interest in scaling further. Yet the BofA analysis highlights the constraints on such a combination. 

While it cites potential benefits including “Cost synergies: we estimate these could reach ~€600m (~5% of combined entity),” it also cautions that leverage and scale mismatches represent major obstacles. 

“Leverage: Havas is debt free but a no-premium cash bid would push leverage >3x vs. industry norm (0-1x). Reducing to 1x implies ~€5bn equity required, which is 3x Havas’ market cap.”

BofA also flags execution challenges, noting that “Havas lacks experience with large-scale deals” and that WPP is only “about to open a new strategic chapter with a new CEO at its helm,” which may complicate any transformational merger. 

Its granular comparison shows WPP’s scale advantage, 104,000 employees versus Havas’ 23,000, as well as WPP’s significantly larger revenue base, underscoring the complexities of integration.

Private-equity involvement appears even less likely. According to BofA, “strategic merits for private equities (PE) are less obvious as agencies’ business model…is less suited with their investment style” adding that “agencies are businesses which can’t be aggressively levered and WPP is already >2x ND/EBITDA.” 

The brokerage further notes that reported interest has centred on “‘WPP Media’ (c40% of net revenue),” but warns that WPP may be reluctant to sell because it “would leave WPP more exposed to declining disciplines” and could “create dis-synergies” across client relationships.