By Alex Gavrish, Etalon Investment Research; author of “Wall Street Back To Basics”
Complex merger of Omnicom and Publicis is cancelled
Last month advertising firms Omnicom Group Inc. (NYSE:OMC) and Publicis Groupe SA (EPA:PUB) cancelled their merger. A highly complex transaction was in progress for many months. It was finally cancelled due to many issues, among them control of the company and executive roles, integration difficulties, and delay of regulatory approvals in China. It is reasonable to assume that Omnicom Group Inc. (NYSE:OMC) and Publicis Groupe SA (EPA:PUB) will actively look for other strategic options and M&A opportunities.
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Interpublic Group takeover speculation
Interpublic Group of Companies Inc (NYSE:IPG) is considered by some to be an attractive takeover candidate. Famous investor Mario Gabelli recently spoke to CNBC
According to him, The Interpublic Group can come into play after Omnicom/Publicis transaction was cancelled. CNBC also reported that activist hedge fund Elliott Management may be buying company’s stock. The fund is well known for its past investments that involved M&A deals.
However, in our view one should not gamble on such market speculations. First, the majority of buyout rumors are not followed by actual transactions. According to data compiled by Bloomberg, electronic news services, brokerages and newspapers reported at least 1,875 rumors about potential buyouts of 717 companies between 2005 and 2010. A total of 104, or only 14.5 percent, were acquired
Second, rumors of Interpublic buyout had already surfaced before. Last year Publicis’ CEO Maurice Levy explained that Interpublic acquisition is not somethng he contemplates. Instead, the firm plans to focus on BRIC countries as well as digital advertising space
Third, gambling on buyout rumors should be done under one condition only: when fundamental valuation is attractive enough and will allow investor to profit even if rumors dont materialize. Judging by this criteria, Interpublic’s valuation is not especially interesting. It is more expensive than Omnicom, for example. Interpublic Group of Companies Inc (NYSE:IPG) is valued at an EV/EBITDA multiple of x11.3 while Omnicom trades at a lower multiple of x9.6 (FY 2013).
Interpublic Group of Companies Inc (NYSE:IPG) is one of the worlds’s premier global advertising and marketing services companies. Through45,400 employees in all major world markets, its companies specialize in consumer advertising, digital marketing, communications planning and media buying, public relations and specialized communications disciplines. Company’s agencies create customized marketing programs for clients that range in scale from large global marketers to regional and local clients. Comprehensive global services are critical to effectively serve company’s multinational and local clients in markets throughout the world, as they seek to build brands, increase sales of their products and services and gain market share.
As of June 6th, 2014, Interpublic Group of Companies Inc (NYSE:IPG)’s market capitalization was $8,261 million and enterprise value equaled $9,157 million, Company is currently valued at an EV/EBITDA multiple of x11.3 (FY 2013). Free Cash Flow equaled $420 million in FY 2013 which represents a yield of 5%. Company pays a quarterly dividend of $0.095 per share which provides an annual yield of 1.96%. During FY 2013 Interpublic repurchased $482 million worth of shares and recently authorized an additional share repurchase program of $300 million. Despite recent takeover rumors and media reports, we believe one should take a cautious view and not make investment decisions based solely on the temptation created by media and market rumors.