Ad firms after the crunch

The extended offer period ends on Wednesday for UK advertising group WPP’s bid for market research firm Taylor Nelson Sofres (TNS). The latter submitted to the takeover bid earlier in the month after a long battle, which it only abandoned once WPP chief Sir Martin Sorrell threatened to use his existing stake in TNS to delist the firm, leaving hold-outs as minority shareholders in an unlisted company. Sorrell having been successful, the merger will now create the world’s largest advertising group by revenues.

However, with consumer demand faltering the wake of the credit crisis, WPP may come to rue its acquisition. Fitch has suggested that the firm’s credit rating may be threatened as advertising revenue falters, after a series of debt-financed acquisitions in the past decade. The Olympics and the Presidential election have helped to sustain advertising spending in 2008, but there are no such events next year.s

On the other hand, having bought TNS will have diversified WPP’s revenue stream away from advertising alone, which will now only represent around 40% of the combined group’s income (down from 46% last year). Inveterate dealmaker Sorrell can also claim to know what he is doing, having made a bid for media buyer Tempus just before the last crash. WPP tried to get out of that deal, but eventually profited from it. Perhaps WPP may be lucky again.

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