Rumors of an "Interpublicis" deal -- which have circulated from time to time in adland for nearly a decade -- have reared their head again.
The latest speculation came in a Financial Times blog post on Friday that cited "usually knowledgeable sources" saying Publicis was weighing an offer to buy Interpublic at a price "in the region of $15 a share," with a total price tag of $6 billion "or more." The blog said sources indicated a deal "has been under preparation for six months."
Interpublic, which just a week earlier reported revenue and profit declines, saw its stock jump 13.3% Aug. 3 to close at $10.97 in heavy trading. The fact that shares remained so far below that rumored $15 offer price after the market digested the blog post suggests that stock traders are skeptical. The stock is still below its July 25 closing price of $10.99 (the day before shares slid below $10 on weak second-quarter results).
The last time that Interpublic's stock traded at or above $15 was in 2004.
Both Publicis Groupe and Interpublic declined to comment on market speculation. Were an acquisition to take place, it would create the world's second-largest agency company, with $15.1 billion in combined 2011 revenue for Publicis and Interpublic, behind WPP ($16.1 billion) and ahead of Omnicom Group ($13.9 billion).
Adland still has an appetite for big deals, given the consolidation activity that 's taken place this summer. In July, Japanese ad giant Dentsu announced a $5 billion bid for British holding company Aegis, which would mark one of the biggest deals in ad history and a landmark merger of two rival holding companies. That news came on the heels of another large deal, when during the Cannes International Festival of Creativity in June, WPP announced it would acquire the biggest digital agency still on the block, AKQA.
Pivotal Research Group analyst Brian Wieser -- who is a former executive with Interpublic's MagnaGlobal -- was bullish on a Publicis-Interpublic deal, saying he believed it credible because "Publicis CEO Maurice Levy is undoubtedly interested in leaving a legacy following his retirement within a few years, and leaving his company as one of the global giants along with Omnicom and WPP would be consistent with this goal." He added that succession at Interpublic remains unclear, with CEO Michael Roth "expected to retire within the next few years" with "few candidates who are front-and-center."
But several executives familiar with the companies told Ad Age that while a deal on paper makes sense -- and is not out of the question down the road -- it's not believed to be an imminent move.
Several executives also suggested that talk of a tie-up between Interpublic and Publicis was being fueled by parties outside of the two holding companies, either rivals looking to cast uncertainty on the futures of the two firms or banks eager to stir the pot during a quiet summer. On the latter point, some suggested one possibility was that a bank was conducting an evaluation on a possible M&A deal, the details of which were leaked.
Deutsche Bank called such a deal financially unnecessary and unattractive.
Analysts Matthew Chesler and Patrick Kirby called the potential merger a long-running industry rumor, one that they're not surprised to see reemerge. "We are, however, surprised at the timing," the analysts wrote in a note. "Firstly, Maurice Levy, CEO of Publicis, is stepping down shortly -- therefore, the leadership structure of a combined group remains in some doubt; secondly, Publicis has made a series of smaller acquisitions in recent years -- Digitas, Razorfish, Rosetta -- which have focused on digital, but have also consolidated its U.S. presence. Hence our view is that this deal is strategically far less compelling for Publicis now than it might have been six years ago. Publicis already derives 50% of revenues from the U.S. The last time Publicis made a 'transformational' acquisition was in 2002 -- BCom3 for $3 [billion]." The analysts added that if and when such a deal were to come to pass, it would require a large equity component.
"We assume that any deal would have to include a material portion of equity-funding," said Deutsche Bank in a note late Friday. "Publicis is a conservative company financially. ... We strongly believe Publicis shareholders would prefer to see the balance sheet levered up through investment in smaller deals and increased cash returns to shareholders, rather than invested in a large transformational deal. We would expect a cautious reaction in the [Publicis] share price on Monday."
UPDATE: Following publication, Publicis issued this statement denying deal talks. "Following the speculations published by FT.com Alphaville and their resulting widespread publicity, Publicis Groupe denies having engaged in any discussions with Interpublic Group of Cos and confirms that it has not commissioned any bank to undertake any such discussions."