WPP can sit out the sudden bout of adland M&A. Publicis and Omnicom's planned $35-billion merger would shunt the British group down to second in the global advertising business. That must gall WPP boss Martin Sorrell, who has built an industry leader through scores of deals. But the merits of gatecrashing the Publicis Omnicom tie-up, or buying a smaller rival as a consolation prize, look dubious. And WPP could benefit just by doing nothing.
Sorrell has three options. The first would be to intervene directly in this cuddly, nil-premium union, offering a richer takeover bid for either Publicis or Omnicom. But the sums would be huge: $20 billion or more, assuming a $3-billion premium. That would be a stretch for WPP, which is worth $24 billion. The premium would have to be justified by stripping out far more costs than Publicis Omnicom envisage. Regulators would surely be sceptical. Without the support of top shareholder Elisabeth Badinter or the French government, a bid for Publicis looks foredoomed. True, Omnicom is easier prey. But the US group is also less alluring, having made less progress expanding in emerging markets and digital marketing.
The second route would be to find another deal. WPP could bid for a second-tier advertising shop: the US outfit Interpublic, Dentsu of Japan or Havas, Publicis' domestic rival. But WPP already enjoys global scale. Incremental cost savings aside, the benefits would be limited. Interpublic, capitalised at $6.7 billion, would be the most straightforward, but is undermined by weak margins. Storming into Japan or France might be tricky. Alternatively, WPP could reassess its portfolio and find a less obvious target. Analysts at Bernstein say Nielsen, the US-listed market researcher, could fit - but the overlaps would be significant.
Or WPP could just sit tight, focus on poaching disgruntled clients, and see whether antitrust watchdogs let the deal through. Increased market concentration may improve everyone's bargaining power with clients and media companies. That might be the reasoning behind a small rise in WPP's share price. Forced disposals from Publicis Omnicom could also yield interesting small acquisitions. Investors should be sceptical of "me-too" M&A. Doing nothing could prove the wisest response.
Sorrell has three options. The first would be to intervene directly in this cuddly, nil-premium union, offering a richer takeover bid for either Publicis or Omnicom. But the sums would be huge: $20 billion or more, assuming a $3-billion premium. That would be a stretch for WPP, which is worth $24 billion. The premium would have to be justified by stripping out far more costs than Publicis Omnicom envisage. Regulators would surely be sceptical. Without the support of top shareholder Elisabeth Badinter or the French government, a bid for Publicis looks foredoomed. True, Omnicom is easier prey. But the US group is also less alluring, having made less progress expanding in emerging markets and digital marketing.
The second route would be to find another deal. WPP could bid for a second-tier advertising shop: the US outfit Interpublic, Dentsu of Japan or Havas, Publicis' domestic rival. But WPP already enjoys global scale. Incremental cost savings aside, the benefits would be limited. Interpublic, capitalised at $6.7 billion, would be the most straightforward, but is undermined by weak margins. Storming into Japan or France might be tricky. Alternatively, WPP could reassess its portfolio and find a less obvious target. Analysts at Bernstein say Nielsen, the US-listed market researcher, could fit - but the overlaps would be significant.
Or WPP could just sit tight, focus on poaching disgruntled clients, and see whether antitrust watchdogs let the deal through. Increased market concentration may improve everyone's bargaining power with clients and media companies. That might be the reasoning behind a small rise in WPP's share price. Forced disposals from Publicis Omnicom could also yield interesting small acquisitions. Investors should be sceptical of "me-too" M&A. Doing nothing could prove the wisest response.