This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Interpublic Group: Should You Gamble On Takeover Rumors?

By Alex Gavrish, Etalon Investment Research; author of " Wall Street Back To Basics "

Interpublic Group

Complex merger of Omnicom and Publicis is cancelled

Last month advertising firms Omnicom Group Inc. (OMC - Get Report) 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. (OMC - Get Report) and Publicis Groupe SA EPA:PUB will actively look for other strategic options and M&A opportunities.

Interpublic Group takeover speculation

Interpublic Group of Companies Inc (IPG - Get Report) 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 (IPG - Get Report) is valued at an EV/EBITDA multiple of x11.3 while Omnicom trades at a lower multiple of x9.6 FY 2013.

Company profile

Interpublic Group of Companies Inc (IPG - Get Report) 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.

Current valuation

As of June 6th, 2014, Interpublic Group of Companies Inc (IPG - Get Report)’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.

The post The Interpublic Group: Should You Gamble On Takeover Rumors? appeared first on ValueWalk.

-By Alex Gavrish

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
IPG $21.30 0.00%
OMC $73.08 0.00%
PUB $17.70 0.00%
AAPL $121.30 0.00%
FB $94.01 0.00%

Markets

Chart of I:DJI
DOW 17,689.86 -56.12 -0.32%
S&P 500 2,103.84 -4.79 -0.23%
NASDAQ 5,128.2810 -0.5040 -0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs