MW Interpublic shares are jumping on a possible deal. Here's what could happen.

By Steve Goldstein

Interpublic stock jumped Monday after multiple reports it may merge with Omnicom in a deal that that would create the largest advertising company.

The Wall Street Journal reported the two companies may announce a transaction as early as this week that would value Interpublic between $13 billion and $14 billion, versus its Friday close of nearly $11 billion. The Financial Times said the deal could be announced as early as Monday.

Interpublic $(IPG)$ shares jumped 14% to $33.27 in premarket trade. Omnicom shares $(OMC)$ fell 3%.

"We note that a deal of this type could potentially deliver significant cost efficiencies and benefits of scale, especially in media and technology. It would not, however, be without risk with the key challenge being potential revenue disynergy from any client conflict and protracted uncertainty for staff," said Citi analyst Thomas Singlehurst in a note to clients.

Historically, he said, larger scale M&A in the agency space has tended to have less favorable returns than smaller scale, bolt-on acquistions, he said.

Citi's own survey of chief marketing officers find the principal drivers of agency selection are data capabilities, the integrated nature of the offering, creative capabilities and media scale. "Based on this, we would note that a transaction of this magnitude and complexity could be justified, albeit it would require strong execution on integration," he said.

Ian Whittaker, an independent media and technology advertising analyst, said the upside would come from cost savings rather than extra revenue generation. He also said the deal may spark more consolidation in the industry.

WPP is currently the number one ad company, and France's Publicis is no. 2. WPP shares (UK:WPP) $(WPP)$ rose 2% in London, as Publicis stock (FR:PUB) added 1% in Paris.

-Steve Goldstein

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December 09, 2024 05:33 ET (10:33 GMT)

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